Taxes and Consequences: The Second Term Begins
This NY Times story from Daniel Altman is yet another heads-up on what to expect in Bush's second term. Almost all the proposals on the table have two things in common: they will more income inequality, and they will reduce the tax base, thus requiring the Administration to cut spending somewhere or suffer larger deficits.
What is discussed in this brilliant summary of possible tax reforms:
Privatization of Social Security: President Bush said he wants to give workers an opportunity to divert part of their payroll taxes to individual investment accounts, in the hope that the financial markets would pay higher returns than the existing Social Security system.
Simplification of the Income Tax: Simplification could take several forms, from closing loopholes and streamlining rates (as in the 1986 restructuring), to a complete overhaul resulting in a flat tax.
Making the 2001, 2002 and 2003 Tax Cuts Permanent: The president has repeatedly voiced his determination to achieve this goal, but the medium-term cost could be huge.
Tax-Free Saving Accounts: The Bush administration proposed an enormous expansion of saving accounts similar to Roth IRA's, where after-tax income funneled into a special portfolio would generate tax-free returns. Individuals would be able to salt away up to $15,000 a year, under the initial proposal.
Abolishing the Tax on Dividends: The White House sought to eliminate this form of "double taxation" in 2003. In the end, Congress cut tax rates on dividends and capital gains, but didn't abolish the taxes.
By the way, the idea of abolishing dividend tax is new to me. If it becomes a reality, it will really challenge lots of the commonplace thinkings about investment.
I always believe active management of one's tax is a good virtue. Year-end tax management is crucial: a few wise moves can probably pay a significant part of your holiday bills. Take a look at this CNN Money article to get some tax tips. Read
Now the deductibility of state sales tax is a done deal for 2004 and 2005 tax returns, what should we expect next? Read
Another tax topic for the day: IRS just released a bunch of magin numbers that applies to a variety of retirement plans for 2005. For a quick summary, check out this beautiful table at Employee Benefits Legal Resource Site. Read
Kerry M. Kerstetter made an interesting point at his Tax Guru-Ker$tetter Letter site by saying "[d]eferring current tax deductions - or worse still, paying actual taxes on IRA conversions - based on the promise of free pay-outs decades down the road is too much of ... Read
