Tax plan would cut mortgage break

BUSINESS DIGEST

Business Digest

October 19, 2005|By KNIGHT RIDDER/TRIBUNE

WASHINGTON -- The chairmen of President Bush's special tax-advisory panel outlined a controversial plan yesterday to overhaul the nation's tax code by cutting popular tax breaks.

The committee would reduce mortgage-interest deductions, treat some health care benefits as taxable income and eliminate the federal deduction of state and local taxes from taxable income.

However, with Bush's poll numbers plunging, Republican congressional leaders indicted or under federal investigation and midterm congressional elections next year, it's unclear whether lawmakers will want to risk a public backlash by trimming popular tax breaks.

The bipartisan panel, headed by two former senators, will send the Bush administration a plan to overhaul the tax code by Nov. 1. Bush had asked it for ideas to simplify the tax code and promote economic growth while not adding to the national debt or reducing revenues. The president is expected to recommend tax-code changes to Congress next year.

The committee proposes to cut the cap on interest deductions for home mortgages; taxpayers could deduct interest for only the first $350,000 of their mortgages, rather than the first $1 million. The panel also proposes that employer-provided family health-care plans valued above $11,000 and individual plans worth more than $5,000 be treated as taxable income. Currently, health-care benefits aren't subject to taxation.

The panel would collapse the current six tax brackets into four, with the top rate remaining at 35 percent and three-quarters of taxpayers in the bottom bracket of 15 percent.

The panel calls for cutting the tax rate on personal-investment income such as interest on bank accounts, which currently is taxed at the same rates as other income. The committee would lower it to a flat rate of 15 percent.

It also would lower the corporate tax rate from a maximum 35 percent now to a flat rate of 32 percent. Businesses would lose a number of write-offs for depreciation of equipment but could immediately write off much other capital-intensive investment.

The panel's threat to the mortgage-interest deduction is already controversial. Jerry Howard, the chief executive officer of the National Association of Home Builders, called it reckless, adding: "Most Americans have a good portion of their retirement dreams tied up in the equity of their home."

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