Tax Proposals' Tangled Web

Both plans provide generous new tax breaks for investments and savings, including creating new savings accounts that would let you put away a heap of money tax-free.

Neither plan is going to work in its current form because of insufficient details and political posturing. But here are some of the suggested changes from the first plan that are getting the most attention.

Bye-Bye, Favorites

The panel suggests moving us closer to a flat tax. That basically means getting rid of many of the current allowable deductions and just applying one tax rate to our overall income. While this system could work out well for some, others will see their tax bills increase.

For instance, the panel suggests dropping the federal deduction for state and local taxes paid. Now, for folks who live in states such as New York or California, where the state tax is very high, that deduction is a lifesaver. Whatever residents pay to the state is then deducted off their adjusted gross income when calculating their federal tax bill. So it's very hard to see why anyone in those states (yours truly included) would support such a move. Of course, people in Florida and Texas think it's a good thing, because they don't pay state income tax and have felt that those of us who do are getting an extra bonus on our federal return.

The panel also suggests tinkering with the home mortgage deduction. For folks with big mortgages, this deduction is a reward for making mortgage payments for 12 months.

Under the current system, you can deduct your mortgage interest up to $1 million on the Schedule A -- Itemized Deductions form. The problem is that total itemized deductions are limited based on a formula that includes your adjusted gross income. Basically, as your AGI gets higher, the total amount of your allowable deductions decreases or gets phased out. So if you make a lot of money, you won't get the full mortgage deduction.