WASHINGTON, Oct. 18 - President Bush's tax advisory commission agreed today to recommend two alternative tax plans, both of which would limit or eliminate almost all tax deductions, including the ones for state and local income and property taxes.
President Bush is not committed to adopting the commission's recommendations, and many of the proposals are sure to be unpopular in Congress.
One of the most important elements of the plans is that they would replace almost all deductions with tax credits. This would mean that an expense, like the interest payments on a modest-sized mortgage, would be worth the same to each taxpayer regardless of income. Deductions are worth more to taxpayers in high brackets than they are to those in lower brackets.
For individuals, the two plans are almost identical. These are some of the main elements:
The alternative minimum tax, a steep levy faced by an increasing number of middle-income taxpayers, would be abolished.
The tax break on home mortgages would be sharply limited, especially for expensive houses.
No deduction would be allowed for state and local income and property taxes.
Employer-paid health insurance premiums above $5,000 a year for an individual and $11,500 for a family policy would be treated as income to workers and taxed accordingly.
All taxpayers could deduct charitable donations, but only to the extent they exceeded 1 percent of a taxpayer's income.
Personal exemptions and deductions and credits for children would be eliminated and replaced by a credit of $1,600 for a single person, $3,200 for a couple, $1,500 for each child and $500 for each other dependent.
The myriad savings vehicles available now like individual retirement accounts and 401(k) plans would be replaced by three streamlined savings plans and a refundable savings credit for low-income workers.
The six tax brackets in the existing law would be replaced by four, with a low bracket of 15 percent and a top rate of 33 percent. The top rate now is 35 percent.
The two plans differ on the way they would treat investment income. One would eliminate taxes on dividends entirely, lower the top capital gains rate to 8.25 percent on the sale of stock in American corporations and tax interest income at the same rate as wages and salaries.
The other plan would have a 15 percent rate on dividends, interest and capital gains. The rate now is 15 percent on dividends and capital gains, and interest payments are taxed like earned income.
The commission would raise to $600,000 from $500,000 the amount of profits from home sales that would be excluded from capital gains taxes.
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