Archive for the ‘Simpson-Bowles’ Category

Isn’t it time to dust off the Simpson-Bowles Report ?

January 24, 2017

Now that tax reform and spending “rationalization” are on the front-burner, I wonder why there has been nary a mention of old Simpson-Bowles Report.

You may remember that former President Obama commissioned Simpson, Bowles and a blue-ribbon committee to recommend ways to cut the deficit  … and the skyrocketing national debt.

The report took shots at some sacred cows like capping home mortgage deductions and taxing employer-paid healthcare.

But, S-B had the gall to suggest pulling back some entitlements so Obama deep-sixed the report.

Maybe DJT should try to locate a copy.

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Maybe it’s time to re-visit the Simpson-Bowles Report .

Here are some of the highlights …

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Deficit: Simpson-Bowles … be careful what you wish for, because you might get it.

March 28, 2013

Last week with Ryan & the Dems offering dueling budget plans, there was renewed chatter: “Why don’t they just implement Simpson-Bowles?”.

It’s usually stated in a way that it’s a painless gimme.

The convenient compromise.

My hunch: About as many people read the Simpson-Bowles Report as read the ObamaCare law.

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I expect that S-B will become a template for any “grand bargain” … so I started refreshing my memory

Here’s what you need to know …

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Per Simpson-Bowles … go ahead and limit the mortgage interest deduction.

November 16, 2012

Since I think Simpson-Bowles will be the template for the fiscal cliff resolution, I’ve been thinking about its provisions … starting with taxes (of course).

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Mortgage Interest Deduction

Currently, income tax payers who itemize are allowed to deduct mortgage interest subject to some liberal restrictions:

  • Mortgages for both primary and second homes are allowed up to a combined mortgage balance of $1 million
  • Home equity loans— up to $100,000 are allowed with some restrictions on use of the funds

Simpson-Bowles proposed that:

  • The mortgage deduction be eliminated and replaced by a non-refundable tax credit.
  • The non-refundable credit would be equal to the interest on a primary home mortgage up to $500,000
  • No credit would be provided for interest on second home mortgages and home equity loans

Let’s do an example.

Say somebody is holding $1 million in mortgages carrying a 5% interest rate … annual interest paid = $50,000.

  • Under current tax regs, the $50,000 is tax deductible … so, if the taxpayer is in the 35% bracket, the deduction is worth $17,500 in tax savings.
  • Under Simpson-Bowles, only $500,000 of the mortgage qualifies … the imputed  interest on the $500,000 is $25,000 … so, the tax payer – regardless of his tax bracket would get a $3,000 credit against his taxes (12% times $25,000 = $3,000)

On balance, I side with with Simpson-Bowles on this one.

In fact, I’d probably be even more aggressive and phase the mortgage interest tax advantage out entirely over, say, 10 years.

My basic logic: Why should home owners get a tax break that’s not available to the 35% of people who rent the place where they live?

Said differently, why should renters who pay income taxes subsidize my mortgage?

And, it’s hard to say, with a straight face, that vacation homes deserve a tax break.

So, I say: start the process of eliminating the mortgage interest deduction.

What do you say?

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Taxes: Simpson-Bowles … be careful what you wish for, because you might get it.

November 13, 2012

I often read “Why don’t they just implement Simpson-Bowles?”.

It’s usually stated in a way that it’s a painless gimme.

The convenient compromise.

My hunch: About as many people read the Simpson-Bowles Report as read the  ObamaCare law.

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I expect that S-B will become a template for any “grand bargain” … so I started refreshing my memory

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Taxes

Below is the summary chart from the report.

Most of the buzz centers on the reduction of rates, elimination of the AMT, and capping of some deductions.

Let’s get specific.

Among other things, Simpson-Bowles proposes:

  1. Three brackets with a top tax rate of 28% with no AMT
  2. Capital gains & dividends get taxed at ordinary income tax rates … not 15%, not 20% … 28% at top rates
  3. Muni Bonds: Income on newly issued  municipal bonds gets taxed … i.e. existing bonds are grandfathered as Fed  tax-free.
  4. Employer paid health insurance premiums: Exclusion phased out by 2038 (2038?) via a complicated formula catering to unions … translation: employer paid health insurance premiums would eventually be taxed as ordinary income
  5. Deductions: Eliminate ALL itemized deductions … everybody takes the standard deduction … offset by some capped credits
  6. Mortgage deduction replaced by a 12% non-refundable tax credit … Mortgage capped at $500,000; No credit for interest from second residence and home equity loans
  7. Charitable giving: 12% non-refundable tax credit available above 2% of Adjusted Gross Income (AGI) floor … e.g. if you make $100,000, then no credit for the first $2,000 of charitable giving.
  8. No deduction or exclusion for State & Local Taxes … i.e. state income taxes, state sales taxes, local real estate taxes

Obviously, these changes hit different people in different ways.

Start planning …

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Simpson-Bowles Report

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