Tom Moore, Investment Advisor and Partner at CIA, likes the idea of streamlining the tax code and jettisoning special tax treatment. This all comes from a budget plan that was poised for House approval in late March.
Rep. Paul Ryan, R-Wis., chairman of the House Budget Committee, introduced this budget resolution that calls for deep cuts in domestic spending, an overhaul of entitlement programs and a balanced budget by 2040.
The proposal includes a recommendation to modify the current tax bracket structure, collapsing the current six tax brackets to two — 10% and 25% — and eliminating the alternative minimum tax. It doesn’t address capital gains and dividend rates specifically but implies that the current 15% rate for both should continue.
Thomas Moore believes it would help ensure that high- and low-income earners pay up, he said.
“Both ends of the spectrum need to be dealt with,” Mr. Moore said. “The plan simplifies things and gets rid of the deductions and tax credits.”
The tax plan, which was drafted by House Ways and Means Committee Republicans, wouldn’t decrease the amount of taxes that the government collected, as special tax breaks would be scuttled.
“The budget would eliminate tax subsidies, not for the purpose of increasing total tax revenue, but instead to lower rates,” according to the budget document.
Mr. Ryan acknowledges, however, what advisers and their clients already know: A House budget won’t become law this year, given that Democrats control the Senate.
One of the goals of the budget resolution is to provide what Mr. Ryan calls a clear alternative to President Barack Obama’s budget in the months leading up to the November elections.
Mr. Obama’s plan, which was released in February, would allow the top two tax brackets to revert to 36% and 39.6%. It also would increase the capital gains rate to 20%, from 15%, for individuals earning more $200,000 annually, while taxing dividends as ordinary income rather than at the current 15%. Mr. Ryan’s budget “would shower the wealthiest few Americans with an average tax cut of at least $150,000, while preserving taxpayer giveaways to oil companies and breaks for Wall Street hedge fund managers,” White House communications director Dan Pfeiffer said in a statement.
Mr. Ryan said that he can compromise, but not with Mr. Obama, who he said stands against the bipartisan trend to make the tax code simpler and broader.
“I believe that the seeds for bipartisan compromise on Medicare and tax reform are there, but it’s not with the Democrats that run the party right now,” Mr. Ryan said last week at The Heritage Foundation in Washington.
“It’s not with [Senate Majority Leader] Harry Reid [D-Nev.], and it’s not with President Obama. That’s why I want to go to the country and ask [voters] to replace them,” Mr. Ryan said.
House action on the Ryan budget isn’t simply pro forma, according to one Capitol Hill veteran. It could set the stage for further tax reform development, even though it is almost certain that Congress will wait until after the election to address the Bush administration tax cuts that expire Dec. 31.
The House vote “will be a clear statement of where Republicans are in terms of tax reform and taxes on capital investment,” said Jim Mc- Crery, a former Republican member of the House Ways and Means Committee, who now heads the Alliance for Savings and Investment. “And we know there are a number of Democrats who have historically supported lower rates on capital gains and dividends,” Mr. McCrery said. “That combination is meaningful.”
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