Compliance October 19, 2005

Proposals Would Eliminate Tax Advantage of Some Benefits

October 19, 2005 (PLANSPONSOR.com) - In addition to eliminating or limiting some popular tax deductions, two tax plan proposals President Bush's tax advisory committee will present to him could eliminate the tax advantages of some employee benefits.
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The New York Times reports that the changes were designed so that the tax burdens borne by the rich, the middle class and the poor would be roughly the same as now, and would be the most fundamental change in the American tax system since 1986.

Provisions of the proposal affecting employee benefits, according to the Times, are:

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  • Employer-paid health insurance premiums above $5,000 a year for an individual and $11,500 for a family policy would be treated as income to workers and taxed accordingly.
  • The myriad of tax-advantaged savings vehicles now available, like individual retirement accounts, 401(k) plans and tax-free savings for education and health care, would be replaced by a streamlined system of three savings plans and a refundable savings credit for low-income workers.
  • Taxes on dividends paid by American companies would be eliminated and the top capital gains rate would be lowered to 8.25% on the sale of stock in such companies, in one plan.
  • The rate on dividends, interest and capital gains would be 15% in the other plan.   (Currently, the rate on dividends and capital gains is 15%.)

The proposals are due to be submitted to the president by November 1.

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