Lecture17d.ppt

Lecture17d.ppt - Lecture17FundamentalTax Reform...

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Lecture 17  Fundamental Tax  Reform
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What will taxes look like in the  future? Major changes in tax structure during past 50 years Introduction of VAT in most countries Major expansion in role of payroll tax in U.S. Large drop in personal and corporate tax rates Drop in taxes on capital income What happens next??
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Outline of Lecture Debate over alternative minimum tax Policies to reduce tax arbitrage Tax treatment of savings Tax treatment of investment Next time: consumption taxes and flat taxes
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Alternative minimum tax Originally enacted to assure that tax arbitrage does not entirely wipe out anyone’s taxable income Broader base and somewhat lower rates (26% to 28%) Replace exemptions with a fixed deduction that varies little with marital status State and local tax payments not deductible Medical expenditure deduction disallowed Many favorable provisions for particular capital investments disallowed, including capital gains until 1986 Pay maximum of taxes due under regular tax and under AMT
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Alternative minimum tax A rapidly increasing number of people are subject to the AMT Brackets in regular tax indexed for inflation AMT brackets not indexed Recent tax cuts under regular tax did not affect the AMT Hits primarily middle to upper-middle income households in states with large public sectors Significant revenue at stake, so hard to reform
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Taxable Income Taxes due Income tax AMT
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Taxable Income Taxes due Income tax AMT Changes due to inflation
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Taxable Income Taxes due Income tax AMT Changes due to income tax cuts
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Alternatives to the AMT: President’s Tax Commission proposal Repeal AMT, BUT State and local tax payments No longer deductible for anyone Health insurance deductions more limited Cap on size of deduction, with cap indexed to CPI But individually purchased health insurance deductible if no employer plan
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Alternatives to the AMT: President’s Tax Commission proposal Mortgage interest deductions Limited to mortgages on primary residence up to the average value of a house in the region. Deduction at a 15% tax rate
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Lecture17d.ppt - Lecture17FundamentalTax Reform...

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