Tuesday, February 23, 2010

A Bipartisan Plan for Tax Fairness

From the Wall Street Journal:

There is an important issue looming on the congressional horizon: how to address the expiration of the Bush tax cuts at the end of this year. We believe there is a consensus way forward, which is why we are introducing the Bipartisan Tax Fairness and Simplification Act of 2010.

By streamlining and modernizing the outdated tax code, our proposal would eliminate many of the specialized tax breaks that currently benefit one group of Americans over another. The changes we propose will create policies that benefit everyone. They include: fiscally responsible middle-class tax cuts, business tax breaks to help American companies compete globally and create jobs, and a fairer and simpler tax system for all Americans.

The IRS estimates that each year Americans spend nearly $194 billion and 6.6 billion hours on tax compliance. Under our simplified approach, most taxpayers will be able to use a straightforward and shortened one-page 1040 IRS form to file their federal income taxes. In an effort to make paying taxes even simpler, taxpayers will be able to request that the IRS prepare a tax return for them to review, edit and sign.

We reduce the number of tax brackets from six to three—15%, 25% and 35%—and simplify the tax code for individuals and families by eliminating the alternative minimum tax. By nearly tripling the standard tax deduction, creating new opportunities for tax-free saving, and eliminating restrictions on personal exemptions and itemized deductions, under our proposal most Americans with an annual income of up to $200,000 will fare as well or better than they do under the current system. Furthermore, they won’t have to worry about maintaining the records and receipts necessary to document itemized deductions.

In order to encourage investment, our legislation would exempt taxpayers from paying taxes on the first 35% of their long-term capital gains income. To qualify as a long-term gain, investments would have to be held for at least six months for the first $500,000 of capital gains and for at least one year for capital gains after the first $500,000. This will give smaller investors more flexibility than they have now to respond to a volatile investment climate.

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