Income tax simplification is a recurring subject on this blog, so I took notice of this NY Times article regarding yesterday’s announcement that President Bush’s tax-overhaul panel had agreed to offer two alternatives to the present tax code — one alternative that essentially streamlines the current income tax and a second, bolder alternative that would replace it with a progressive tax on consumption. Although both proposals would do away with the deduction for state and local taxes, limit the current deduction for home-mortgage interest and tube the unpopular alternative minimum tax, the two plans differ in their approach to taxing business.
Both proposals will be included in the panel’s final November 1 report to the Treasury Department, and the report is expected to be the framework for legislative proposals regarding overhauling the tax code next year. The income tax that the panel approved in principle yesterday is based on the following basic framework:

Creating four income-tax brackets of 15%, 25%, 30% and 33%, which is below the current top rate of 35%;
Reducing the top corporate-tax rate to 32% from 35%, eliminating the corporate alternative minimum tax and eliminating the tax on profits from active businesses overseas so that firms could repatriate overseas profits tax-free;
Reducing the tax on capital gains to 25% of the ordinary income-tax rate, or a top rate of 8.25%, which is less than the current 15%;
Eliminating the tax on dividends;
Creating a new limit on health insurance provided tax-free by employers of about $11,000 for families, $5,000 for individuals;
Replacing the mortgage-interest deduction with a tax credit equal to 15% of mortgage interest paid, but limiting it to interest on mortgages between $172,000 and $312,000 depending on the geographic region;
Eliminating the “marriage penalty” by providing a family credit of $1,650 for singles and $3,300 for couples;
Simplifying tax breaks for savings; and
Reducing the Form 1040 tax return to 32 lines from 75.

The second, bolder alternative would fundamentally change the U.S. tax code toward an approach of taxing spending rather than income in an effort to encourage saving, investment and economic growth. For individuals, it would have two major exceptions from the other alternative — its four tax brackets would be 15%, 25%, 30% and 35%, and it would impose a flat 15% tax on dividends, capital gains and interest.
However, the second alternative would take a very different approach in tax policy toward business, although the top corporate rate would remain at 32%. Companies would be allowed to expense all capital spending in the first year (rather than of depreciating it over time), but businesses would no longer be allowed to deduct interest payments.
As the blogosphere digests these two proposals over the next several days, I will provide links to insightful expert analysis of the proposals.