From the New York Times and my prior post we have more details on the two plans for proposed tax reforms. Most provisions are shared by both plans:
* "both . . . would limit or eliminate almost all tax deductions, including the ones for state and local income and property taxes."
* "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."
* "The alternative minimum tax . . . would be abolished."
* "Both plans would lower the limit to the maximum mortgage the Federal Housing Administration will insure. That level changes each year and varies depending on housing costs in each county, with a maximum loan limit now of $312,895 in communities where housing is most expensive and a national average of about $244,000." Rather than a deduction, it would be a tax credit for 15% of that amount.
* "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."
* "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 break even point (i.e. the point at which the first dollar of income tax is payable) for a married couple with two children would be $41,333.33.
* Benefits and savings accounts for retirement, health and education would be eliminated in favor of three savings accounts, all funded with taxed income that would be allowed to grow and be withdrawn tax free. One account would let workers save for retirement through their employers. Taxpayers could also put $10,000 every year into each of two accounts, one for retirement and the other for health, education and home-buying expenses. Low income taxpayers could get a non-refundable savers credit worth up to $500.
* Fringe benefits for employees other than retirement and health insurance, like child care and life insurance, would be taxed.
* It retains the earned income tax credit, a benefit designed to lift the working poor out of poverty, but gives workers the option of letting the IRS make that complicated calculation.
* "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." 75% percent of individuals and families will be in the bottom 15 percent tax bracket.
* "both would lower the maximum corporate tax rate to 32 percent from 35 percent."
The key differences between the two plans are as follows:
* "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.
* "One plan would require investments in plants and equipment by large companies to be written off under depreciation schedules and allow businesses to deduct the interest they pay on loans. This plan would eliminate many of the tax preferences that allow businesses with comparable profits to pay widely different amounts in taxes. The other plan would allow businesses to write off the cost of plants and equipment in the year the cost is incurred, a system known as expensing, and would disallow deductions of interest."
I'll save most of my analysis of these proposals for later. Tax Profs Blog has a roundup of blog posts and notes a new website by the moderately liberal think tank, the Tax Policy Center on the issue.
The FHA limit varies by county in Colorado. An overall summary is found here. In the Denver metropolitan area (Adams, Arapahoe, Broomfield, Clear Creek, Denver, Douglas, Elbert, Gilpen, Jefferson, and Park Counties) the limit is $261,609 for a single family residence. Outside the metro area most counties have a limit of $172,632.
La Plata: $230,850
San Miguel: $261,609
Teller County: $206,798
Weld County: $218,025
The proposed mortgage interest credit would be 15% of mortgage interest paid up to the cap for the county in question. Thus, in Denver, for example, the tax benefit of the mortgage interest credit on an interest only 6% loan would be limited to $2,354, regardless of the actual size of the loan or the home owner's income.