Debt crisis: Gang of Six plan stinks


http://money.cnn.com/2011/07/19/news/economy/gang_of_six_budget/index.htm?hpt=hp_t1

http://www.bloomberg.com/news/2011-07-19/u-s-house-set-to-pass-doomed-spending-cut-bill-with-no-debt-deal-imminent.html

As the details of the proposal filter out it is apparent that it is simply a rehashed version of earlier republican demands and most of the changes in the tax code are middle class-adverse. The tax exemptions to be eliminated are among the portions of the tax code which benefit the middle class the most. President Obama already said that he likes the plan although he does not know the details. Is it that all the arguing of the last few days was staged and the final act of the surrender is coming up?

Tax rates: Reduced from 6 to 3. Lowest tax rate remains unchanged: From 10% now it goes to between 8% and 12% in the plan. By comparison, the higher rate will drop from 35% now to between 23% and 29%.

It would also call for a broad overhaul of deductions that would raise $1 trillion by limiting breaks for health, charitable giving, home-ownership, and retirement while lowering individual and corporate tax rates. It would phase out the Alternative Minimum Tax, a system designed to prevent higher- earners from avoiding taxes.

The excuse to eliminate the Alternative Minimum Tax — often called the “wealth” tax — is that it threatens to hit the middle class in increasing numbers every year because of how it was set up.

I would say the solution is to fix the clause; not to scrap it altogether. Without the AMT, creative wealthy individuals will not pay taxes at all while the real middle class is screwed.

It is not clear at this moment how social security and medicare are affected in the plan. But it is clear that they will be.

There is no question that the middle class will be affected in any debt reduction plan. The question is whether the middle class will be the only class affected.

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