Yep, they're all about lower taxes.....

A tax reform proposal agreed upon Tuesday by President Bush's advisory
panel would eliminate the federal deduction for state and local taxes
and sharply limit the tax break for home mortgage interest.

That's leading some Democrats in California and New York to assail it
as an attack on the blue states -- the ones that voted Democratic in
the 2004 presidential election -- which tend to have higher taxes and
housing costs.

"The Bush panel's recommendations are a double-barreled blast aimed
squarely at California and the middle class," state Treasurer Phil
Angelides said in a press release. "These recommendations are good for
Texas, but bad for California."

Sen. Charles Schumer, D-N.Y., called it a pernicious proposal and a
"dagger to the heart of the people of New York."

The bipartisan panel, appointed by Bush early this year, was asked to
identify ways to simplify federal tax laws and redistribute the
"burdens and benefits" of federal tax "in an appropriately progressive
manner while recognizing the importance of homeownership and charity."
Its proposals, on balance, are supposed to neither raise nor lower
federal tax revenue.

Most observers think the proposal has little chance of adoption because
of the broad range of interest groups -- not to mention political
sacred cows -- it would threaten. Still, the plan is expected to spark
a far-reaching debate on tax reform.

The plan, which the panel plans to finish up next week, would simplify
taxes for the about one-third of taxpayers who itemize deductions -- by
eliminating them. Schedule A, the IRS form used to itemize deductions,
would go bye-bye along with many other tax-return forms.

The deduction for interest on a home mortgage, the biggest write-off
for many taxpayers, would be eliminated and replaced with a tax credit.


Under current law, taxpayers who itemize deductions can deduct interest
on up to $1 million in mortgage debt. The interest can be on one or two
homes as long as it doesn't total more than $1 million.

A deduction reduces income before taxes are calculated. The higher your
tax rate, the bigger the benefit.

A tax credit, by comparison, reduces your final tax bill dollar for
dollar, regardless of income.

The proposal calls for replacing the mortgage-interest deduction with a
tax credit equal to 15 percent of the interest paid on one home. The
credit could be claimed even by those who do not itemize deductions
today.

The credit would apply only to interest on mortgages up to the limit
for loans guaranteed by the Federal Housing Administration.

The FHA limit varies by region, but in most parts of California, it is
$312,895. That is well below the median price of a home in California
($568,000) and less than half of the median price of a Bay Area home.

In many parts of the country, the FHA limit is above the median home
price. The average FHA limit nationwide is $265,000.

The plan "would be devastating for states like California where real
estate values have skyrocketed and affordability is at its lowest
levels," said Sen. Dianne Feinstein, D-Calif.

The proposal would eliminate any tax break for interest paid on a
second home or a home equity loan or line of credit.

Under the proposal, the first $600,000 of profit from the sale of a
primary residence would be tax-free for married couples filing jointly.
That amount would be indexed to inflation. Any profit over that amount
would be taxed as ordinary income.

Under current law, couples can exclude up to $500,000 in profit from
the sale of a home, but anything over that is taxed at the lower
capital gains rate.

Jerry Howard, chief executive of the National Association of Home
Builders, said the plan, if enacted by Congress, would "put an
immediate chill on the housing markets and reverse almost a century of
housing policy."

On the plus side for blue states, the proposal also calls for
eliminating the alternative minimum tax, a separate, mind-boggling
system that raises taxes for a small but rapidly growing number of
middle- and upper-middle-income taxpayers. It could affect 30 million
Americans in 2010, up from 2 million in 2002.

The way most people fall into the alternative minimum tax is by
claiming large deductions for state and local taxes, said Clint
Stretch, director of tax policy with the accounting firm Deloitte &
Touche.

On a per-capita basis, the states with the most people paying
alternative minimum tax are New Jersey, New York, Connecticut,
California, Massachusetts and Maryland. All are blue states.

Repealing the alternative minimum tax would reduce taxes for many
Americans, but eliminating the deduction for state and local taxes
would raise them for many more.

Whether individuals would be better or worse off overall depends on
their personal situation and other aspects of the tax plan.

"The political problem is that a lot of the people who will benefit
from the AMT being repealed don't know they have the problem yet,"
Stretch said.

The proposal also would reduce the number of federal tax brackets.
Today, there are six, ranging from 10 to 35 percent. Under the
proposal, there would be four, ranging from 15 to 33 percent.

The panel endorsed two plans for taxing capital gains from investments.


Stretch said the tax panel was trying to simplify taxes without
shifting the burden rich to poor, from poor to rich or from state to
state.

Ideally, the tax burden paid by the top 20 percent, the next 20 percent
and so on would be the same before and after reform. But even if that
happens, there could be big tax-burden shifts within those groups, and
an individual's taxes could change dramatically based on whether they
own a home, what kind of investments they have and other factors.

"This is a very complicated puzzle to try to piece together," Stretch
said.

So much for tax simplification