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Tax reform starting point

By Kay Bell ·
Thursday, February 27, 2014
Posted: 5 pm ET

Most of the time, a 979-page document wouldn't be characterized as an attempt at simplification.

But making the U.S. tax code easier is one of the goals of the proposal released Feb. 26 by Rep. Dave Camp, (R-Mich). And when you consider that by some counts the Internal Revenue Code is 70,000 or so pages long, a piece of legislation that's only about a 70th of that size is welcome. Sort of.

Camp, chairman of the tax-writing House Ways and Means Committee, has been working on comprehensive tax reform for years. Despite concerns from some of his fellow Republicans that talk of taxes could complicate mid-term campaign strategy, Camp decided to put his plan out there.

Today he's finding that there's plenty in the bill to upset just about everyone.

Let's clear this up from the get-go. Camp's proposals have no chance of making it into law in 2014. He knows that. That's why he refers to the bill as a discussion draft.

Once we get past the November elections, we might actually see some serious discussions on tax reform. Camp's bill will be a good starting point.

Obviously, the bill is too long to deal with in one (or two or 20!) blog posts, so let's look first at a question most of us tend to focus on when it comes to taxes: What is our tax rate?

Condensed tax rates

Currently, there are seven tax rates that apply to increasing income brackets. Camp would keep the progressive set-up, but scale it down to just three rates and brackets -- 10 percent, 25 percent and 35 percent.

Camp's proposed tax rate Applies to single taxpayers with income of Applies to married jointly filing taxpayers with income of Maximum 2013 tax rate that applies to the proposed top incomes
10 percent Up to $35,600 Up to $71,200 15 percent
25 percent $35,601 to $400,000 $71,201 to $450,000 35 percent
35 percent More than $400,000 More than $450,000 39.6 percent

Eliminating tax breaks

Of course, to get to those lower tax rates, Camp is suggesting we give up some current tax breaks.

He wants to do away with some popular deductions that many of us now claim. They include elimination of the personal exemption, the itemized deductions of state and local taxes and medical expenses, the above-the-line deductions of student loan interest and moving costs as well as the adoption tax credit.

Tweaking other tax breaks

Some other tax breaks would remain, but not in the form we now know.

You could claim the itemized deduction for home mortgage interest if your home loan was $500,000 or less. The mortgage cap currently is $1 million, and the reduction would be phased in over four years. This wouldn't affect most people.

Lower-income workers wouldn't get as much from the Earned Income Tax Credit as they now do. Camp's plan would reduce the maximum credit to $200 for joint filers with no children, $2,400 for filers with one child and $4,000 for joint filers with two or more children. On 2013 returns, the EITC could provide as much as $6,044 for qualifying filers with larger families.

And the popular child tax credit would be expanded, going from $1,000 per child to $1,500 per child and $500 for non-child dependents. Future amounts would be indexed to the chained consumer price index, or CPI.

These are just a few items from Camp's plan. It will help some filers. It will hurt others. And a lot of the plan's 979 pages covers business taxes, which present a whole other set of reform battles to come.

As I mentioned, don't freak out too much now about the proposal. It's not going anywhere this year. But once we get past this year's elections and see what the House and Senate look like, get ready for the tax reform debate to begin.

More tax info from Bankrate

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Veteran contributing editor Kay Bell is the author of the book "The Truth About Paying Fewer Taxes" and co-author of the e-book "Future Millionaires' Guidebook."

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