Tax reform proposal finds a host of critics.

• Author: Prysock, Mark

The report by the President's Advisory Panel on Tax Reform, released November 1, checks in at more than 220 pages and includes a host of recommended changes to the way in which individual and business tax revenue is generated. As directed by the President, the Panel developed recommendations that would emphasize simplicity, fairness and growth. The Panel was also tasked with developing a system that would raise approximately the same amount of money as the current tax system.

Given these parameters, the Panel developed two options: A Simplified Income Tax Plan and a Growth and Investment Tax Plan. The Simplified Plan would, in the Panel's words, "dramatically simplify our tax code; clean out targeted tax breaks that have cluttered our system, and lower rates." The Growth and Investment Plan builds on the Simplified Income Tax Plan and "adds a major new feature: moving the tax code closer to a system that would not tax families or business on their savings or investments."

The Panel's numerous recommendations for individual tax reforms have proven controversial. To begin with, the Panel suggested eliminating or capping several popular deductions, such as eliminating the home mortgage interest deduction and replacing it with a 15 percent limited credit. Also eliminated would be state and local income tax deductions, and a $11,500-per-family cap would be placed on the employee exclusion for employer-provided health care.

On the positive side, the Panel recommended eliminating the individual alternative minimum tax (AMT), which it calls "the most vivid example of the wasteful complexity that has been built into our tax system to limit the availability of some tax benefits." Eliminating the AMT, the Panel concluded, would free millions of middle-class taxpayers from filing the forms and making the numerous calculations required to determine their AMT liability.

The Panel also had a host of recommendations for business tax reform. To begin with, small businesses with gross revenue under $1 million would simply report tax income as cash-in minus cash-out, with all spending--except spending for land and buildings--written off immediately. All businesses with receipts over a minimum level would be required to maintain bank accounts separate from a personal account, with all business receipts and expenses paid, and with activity and credit card payments summarized at yearend. Businesses with less than $10 million in gross revenue would enjoy the same...