Senators Ron Wyden (D-OR) and Judd Gregg (R-NH) introduced a bill, “To amend the Internal Revenue Code of 1986 to make the Federal income tax system simpler, fairer, and more fiscally responsible, and for other purposes.” The bill would have a major impact on the US tax system. Though there are many good points about the bill, they really don’t matter: This legislation has no chance of passing this Congress in an election year.
The bill would lower the number of individual tax brackets from six to three (15%, 25%, and 35%). It would eliminate the dreaded Alternative Minimum Tax (AMT). It would triple the standard deduction. All Miscellaneous Itemized Deductions would be eliminated. The first 35% of capital gains would not be taxed (the remainder would be taxed as ordinary income). And the corporate tax would become flat, with a single 24% bracket.
There’s another aspect of the legislation that got my attention. I received a call from one of my gambling clients; he told me that the legislation would lead to regulated Internet Gambling in the United States. My client is correct: Subtitle C of the legislation would allow for legalized Internet Gambling in the United States, with licensing and record-keeping requirements.
Speaking of gambling, the measure does have a huge negative for amateur gamblers. Gambling losses are a miscellaneous itemized deduction; this measure would eliminate all such deductions. Amateur gamblers would be taxed on their winning sessions and would pay income tax on phantom wins that would no longer be offset by gambling losses.
However, this is all irrelevant. This measure has no chance of passing this Congress. Democrats in Congress are, for the most part, talking about massive tax increases rather than tax simplification. It’s also an election year, with Democrats running the risk of losing one or both houses of Congress. Finally, if Democrats are serious about moving health care legislation forward this will likely cause the failure of any other substantive legislation this year. Simply put, this measure is DOA.
Overall, though, I (like most tax professionals) would love to see a simpler Tax Code. It’s just not happening in 2010.
