Gang of Six “Plan” Smoke and Mirrors




The increasingly famous “Gang of Six,” a bipartisan group of senators attempting to come up with a universally acceptable proposal to increase the debt limit, unfortunately has instead come up with a “plan” that makes it impossible to know how it would work.  The media and lawmakers try and make it sound like the core problems are terribly complex when they are in fact very simple – our government needs to spend no more than it takes in.

The so-called “Gang of Six” plan proposes to eliminate the Alternative Minimum Tax, lower tax brackets overall and to “reform” mortgage deductions, charitable deductions and retirement savings.  Unfortunately, because none of the details of the plan have been released (only a vague “outline”), it is IMPOSSIBLE to tell the tax impact of the plan.

The plan could have draconian impacts on the average taxpayer whose primary tax reducing strategies involve paying for a house (the mortgage deduction) and saving for retirement (the retirement savings deduction).  Both of these deductions are going to be reduced and limited under the plan proposed by the Gang of Six meaning that your “tax deductible” 401K won’t be so tax deductible any more.

 To offset these increased taxes, the plan of the “Gang of Six” eliminates the Alternative Minimum Tax and generally reduces tax brackets.   Again the plan lacks the necessary detail for intelligent analysis.   The plan doesn’t specify the exact rate for each of the new brackets, but rather offers a range of between 8% and 12% for the lowest bracket; 14% and 22% for the middle bracket; and 23% and 29% for the top bracket.  For some tax filers rates could be a little higher … or not. For instance, with a proposed range of 8% to 12% for those in the lowest bracket, it’s not clear whether the final rate chosen would be above or below the 10% rate in effect today.

Much like Obamacare, Congress is once again asking us to “trust them” with the details.  As we saw with Obamacare, the details make the deal.  I can’t see how the public can support any proposal with such an uncertain outcome for all taxpayers.

About Geoff Willis