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On money

Best of tax reforms simplify the code

By HELEN HUNTLEY
Published November 6, 2005

The President's Advisory Panel on Federal Tax Reform has come up with some fabulous ideas for simplifying our tax system.

I hope a lot of them make their way through Congress, although I'm not optimistic. After all, Congress is the reason we have a complicated, unfair tax system in need of reforming. Our lawmakers' constant tinkering has given us 15,000 changes to the tax code since 1986.

If you haven't read the recommendations, I encourage you to take a look online. Go to www.taxreformpanel.gov and look up Chapter 5 - or settle in and read the whole report.

Although two plans are being presented for Treasury Secretary John Snow's consideration, the most important reforms are included in both. Here are a few I particularly would like to see Congress adopt:

Replace a hodgepodge of 401(k)s, 403(bs), IRAs, Keoghs, SIMPLEs and more with a single Save for Retirement Account with a $10,000-a-year annual limit. I think the confusion these plans create deters many people from saving.

Replace education savings plans and health savings plans with a single Save for Family Account with a $10,000 annual limit. We have 11 different education tax benefits that require an 83-page booklet to explain them. They use five different income phaseouts and eight different definitions of qualifying expenses. This makes no sense.

Whack the marriage penalty by making the numbers for couples double those for singles in categories such as tax brackets, family credits and taxation of Social Security benefits. It's so unfair to treat married couples worse than couples who live together without officially tying the knot.

Simplify taxes for families with children. The Earned Income Tax Credit, the child tax credit, personal exemptions and the standard deduction would be replaced by two new credits: a Family Credit and a Work Credit.

Let everyone buy health insurance with pretax dollars up to the amount of the average premium. Why should people buying their own health insurance subsidize those who have Cadillac plans?

Inform yourself, then inform your representatives and senators about your opinion. Let the debate begin!

I am alone in the world and concerned about future health care costs, including long-term care. I have about 15 years before I retire. What should I be doing now to help myself in the future?

Paying for health care costs of all types will be a critical issue for most of us in the future. Here are some suggestions for putting yourself in the best position possible:

1. Take good care of your health. At a minimum, exercise daily, eat a healthy diet and don't smoke.

2. Try to get a job with a company that provides health care benefits to retirees. There is no guarantee those benefits still will be offered by the time you retire, but at least you've got a shot at it.

3. Work until you are eligible for Medicare (age 65) or longer.

4. Save aggressively for retirement.

5. Consider high-deductible insurance in combination with a health savings account. It could be worthwhile if you have few medical expenses and are in a position to put money away.

5. Consider buying long-term care insurance. Get some quotes and review whether paying the premiums will be financially feasible for you, based on your current income and your likely retirement income. Don't impoverish yourself to pay premiums.

I bought a used car 14 months ago, financing it at an astronomical interest rate of 22 percent. Due to immigrating to the United States just three years ago, I had absolutely no credit history and was unable to do better. I have a perfect payment history on this car. Where can I find lenders who will refinance?

Try credit unions. Some are open to anyone who lives in their geographic area. Once you have opened a savings account, you may be eligible for a car loan. If you plan to shop for the best rate, make all your inquiries in the 30 days before taking out the loan. If you drag out your inquiries, they will lower your score.

Helen Huntley writes about investing and markets for the Times. If you have a question about investments or personal finance, send it to On Money. We'll try to answer those we think are of greatest reader interest. All questions must be submitted in writing, but readers' names will not be published. Send questions to hhuntley@sptimes.com or Helen Huntley, Times, P.O. Box 1121, St. Petersburg, FL 33731.

[Last modified November 7, 2005, 15:25:24]