Federal panel's sweeping proposals cap deductions on mortgage interest "Many stand waiting... Tax- overhaul plan doesn't si

Both would eliminate most deductions and credits in an effort to simplify tremendously complicated calculations. The second of the two tax systems aims to reduce taxes on savings and investments made by businesses and families.

Both proposed tax systems would abolish the alternative minimum tax, a levy originally drafted to prevent wealthy individuals from escaping taxation but increasingly reaching into the middle class.

Under one plan, individuals would pay no tax on dividends paid by U.S. companies and exclude 75 percent of their capital gains from taxation. Under the second plan, all investment income would be taxed at 15 percent.

In place of tax breaks, the panel would create a few tax credits and three savings accounts that they said would encourage homeownership, charitable giving and saving while also supporting lower income workers and their families.

For taxpayers, those changes would shrink the length of their tax forms and reduce the need for professional help. Taxpayers at varying income levels would pay roughly the same amount of tax as they do now, the report said.

Also, taxpayers could purchase health insurance using untaxed money up to about $5,000 for an individual and $11,500 for a family, a change that caps currently unlimited breaks but would create a tax break for those who do not get health insurance through work.

The panel sharply criticized lawmakers' tendency to use the tax code to promote their policy agendas, noting there had been 15,000 changes in tax laws since the last major rewrite in 1986.

Very quickly, however, the panel heard criticism of their decisions to limit or scrap deductions for mortgage interest, health insurance premiums and state and local taxes.

"Unfortunately, President Bush's tax panel is a Trojan horse, using so-called simplification to cut taxes for the wealthy while increasing taxes for middle-class families," said House Minority Leader Nancy Pelosi, D-San Francisco.

Sen. Jim DeMint, R-S.C., said the recommendations didn't go far enough. "We need comprehensive reform that will make America the best place in the world to invest and do business."

Mark Weinberger, a former Treasury Department official who is now Americas vice chairman at Ernst & Young, said successful tax reform is about trade-offs.

This is cache, read story here