2006 Tax Legislation Possibilities

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CNNMoney reports that while a final bill hasn’t been signed, key provisions have been agreed to and I felt it was necessary to bring them up to see what people thought. These are currently proposals and not yet law (but these are the provisions that have been agreed to).

1. Extend dividend and long term capital gains rates
Extend the nice 15% rate on long term capital gains and dividends (0% for low income taxpayers) instead of reverting back to the 20% rate. Honestly, I don’t know many people in the lower income brackets invest in stocks outside of their retirement portfolios. I know I don’t but I do know that this will benefit higher income taxpayers much more than lower income tax payers. I also agreed with this when it was first introduced as a means of getting more investment in businesses but our economy is humming along quite nicely so this may no longer be necessary (with respect to that).

2. AMT Relief
For 2006, AMT income exemption will be $42,500 for singles and $62,550 for joints. This is very good.

3. Roth IRA Conversion Eligibility
This addition is to offset the taxation loss of the other two proposals (the package had to be under $70B). This would let anyone, temporarily, to convert a traditional IRA to a Roth IRA. The conversion would generate revenue because IRA holders would pay taxes on their accounts but apparently this will only generate revenue for the first four years, it would start losing in the six years after. Hmmm…

Anyone have their thoughts on these proposals? It’s difficult to discuss them when you aren’t sure of the absolute numbers involved but it sounds like we traded AMT relief for a tax break on investments and retirement accounts.

Also, it appears that middle class scores a win on the #2 but the wealthier class hit a double win on #1 and #3…

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2 Responses to “2006 Tax Legislation Possibilities”

  1. Weekly Roundup – 05/12/06

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  2. Bald Man says:

    @ #3 – When the Roth IRA was first introduced, conversions were supposed to be the next big thing. They weren’t, and I don’t see anyreason why it would be different this time around.

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