Rep. Houghton's Tax Simplification Proposals

Three great centrist legislators are retiring this year: Sen. John Breaux, entitlement reform advocate and consummate dealmaker in the Senate, Rep. Cal Dooley, co-founder and long-time leader of the House New Democrats, and Rep. Amo Houghton, a leader among moderate Republicans in the House and founder of the Republican Main Street Partnership.

Last Friday, Rep. Houghton rolled out a series of proposals to simplify the tax system. The bills are numbered sequentially, beginning with H.R. 4131, a proposal to prevent the Alternative Minimum Tax (AMT) from becoming the default tax calculation for millions of middle-income taxpayers.

However, the details of the proposals are less important than the larger theme: Congress should undertake a major tax simplification project. At the least, any new tax changes should be accompanied by simplification measures.

Here is the list of Rep. Houghton's proposals:

Houghton Tax Simplification Package

Alternative Minimum Tax Repeal Act – Substantially slows the growth in the number of taxpayers subject to AMT over the next 10 years, by adjusting the AMT exemption, and finally repealing the provision after 2013.

Child Definition Simplification Act – Provides a uniform definition of a child that is based on the residence, relationship and age of the child.

Filing Status Simplification Act – Changes "Head of Household" to "Single Parent or Guardian" filing status, a term that is less likely to cause a mistake in filing status.

Home Mortgage Tax Simplification Act – Under the proposal, points paid on a home mortgaging refinancing would be fully deductible in the year in which the expense is incurred. The current law generally requires that the refinancing points be amortized over the stated life of the loan.

Taxation of Minor Children Simplification Act – Eliminates the current restrictions on adding a minor child’s income to the parent’s return. A parent could freely elect to include the income of a child under 14 on his or her own tax return.

Education Tax Credit Simplification Act – Merges the HOPE and Lifetime Learning credits, which serve nearly identical purposes but have different rules.

Small Business Tax Modernization Act – Establishes a single passthrough entity regime that preserves the major benefits of Subchapters S and K by combining the benefits of Subchapter S (S corporations) and Subchapter K (Partnerships) of the Internal Revenue Code.

Personal Holding Company Tax Repeal Act – Repeals the Personal Holding Company tax, which is outdated and has been eclipsed by subsequent changes to the tax code.

Small Business Law Tax Conformity Act – Updates the Internal Revenue Code to take into account changes that have occurred in state business law. The proposal would define earnings from self-employment to exclude the portion of a partner’s distributive share that is attributable to capital.

Posted by Jeff Lemieux at April 6, 2004 10:17 AM