After tax season

We didn't have much time for blogging during the tax season. We hope to catch up a little now.

What are the prospects for tax reform? If the tax system were overhauled, what might it look like?

One possible outline issued by a government commission envisions three tax rates: 12%, 22% and 28%. There would be no alternative minimum tax, but only two types of itemized deductions would be allowed: mortgage interest and donations. No mortgage interest deduction would be allowed on second homes. Capital gains and dividends would be taxed at the regular tax rate. Municipal bonds would no longer be exempt from tax. Many other tax breaks would be eliminated.

Of course, this is not likely to happen soon, and if and when anything does happen, it will certainly be quite different from the above outline. This just gives an idea of what some of the thinking is. There is a lot of other thinking going on, too, but nothing concrete yet.

One area of concern, however, is the capital gains tax. There is a strong possibility that it will go up. The debate is likely to on for at least a couple of more years. If it begins to look as though passage is immanent, people holding appreciated assets will probably start selling like mad to avoid the coming tax bite.