Here's a Tax Simplification Proposal to Watch

Tax simplification is on the minds of legislators these days. It might not be the best thing for a CPA's business, but I'd love to see the tax code become more understandable. Here's one proposal that's being considered.

• Only three tax brackets: 15% for the first $75,000 of taxable income for couples, 25% on the next $65,000, and 35% over $140k. Cut those brackets in half for singles.
  
• Bigger standard deductions: $30,000 for married, $15,000 for singles. That means far fewer people will itemize deductions.
  
• Alternative minimum tax is eliminated, as are phaseouts of itemized deductions and personal exemptions on higher income taxpayers.
  
• 35% of your dividends and capital gains would be excluded. That would put those items at a maximum 22.75% tax rate, versus the current 15% rate that's already set to expire at year end.
  
• Municipal bonds would be less favored. You'd get a credit for 25% of the interest on new bonds, instead of the full exemption they enjoy now.
  
• Some tax breaks would be eliminated. These include flex plans, miscellaneous itemized deductions, moving expenses, the foreign income exclusion, and some tax-free benefits like group term life insurance, employer-provided meals and employee awards.