Earlier this year, President George W. Bush created an advisory panel to reexamine the current tax code and simplify it. The panel developed two options that will now be scrutinized by both the president and Congress. A major tax law overhaul would be dramatic, to say the least, and I thought it might be helpful to look at some of their proposals and at least be ready should any of the panel's recommendations be implemented.

The President's Advisory Panel on Federal Tax Reform spent most of the year studying tax designs, including consumption taxes like a national retail sales tax. Bush tasked the group with finding simpler and more economically productive ideas for taxation. They were to retain the progressive system that taxes wealthier taxpayers at higher rates than poorer individuals and families, and they were to recognize "the importance of homeownership and charity in American society." Among those requirements, the panel was also given a very important limitation: the suggested plans must collect roughly the same amount of tax money that the government collects now.

The commission wrapped up its work in October, and its ideas immediately attracted criticism--some from those who wanted to see more change and some from those who wanted to see less. Drawing particular criticism, the panel determined that tax breaks for homeownership be changed to spread their benefits to more middle-income families.

Robert McIntyre of Citizens for Tax Justice, a Washington think tank known for using a computer model to pick apart tax plans like the one nonpartisan congressional analysts use, noted that both options favor investment income over paychecks. Here's a basic rundown of both plans:

The Simplified Income Tax Plan

This plan eliminates taxes on dividends, capital gains, and three types of savings accounts that shelter virtually all investment income in return for scrapping tax-deferred savings plans for retirement, health care, and the like.

Wages, interest, and other income would fall under four tax brackets--of 15, 25, 30 and 33 percent--down from today's six brackets. But the proposal eliminates the bottom rate of 10 percent on taxable income of less than $15,100 for couples, $7,550 for singles, and the top rate of 35 percent on taxable income above $336,550, regardless of marital status.

The Growth and Investment Tax Plan

This plan would create those same tax-sheltered savings accounts and tax investment income from dividends, capital gains or interest at 15 percent. Wages and other income sources would be taxed at rates of 15, 25 and 35 percent.

Provisions in both plans

Both plans would cap the level of home mortgage loan that qualifies for interest deduction (currently at $1 million) at $227,000 in low-cost areas, up to $412,000 in high-cost areas including those in California, New York and Florida.

Tax breaks for second homes and home-equity loans would be eliminated.

Write-offs for state and local taxes would be eliminated.Charitable deductions would be allowed only to the extent they exceed 1 percent of income.

The standard deduction, personal exemptions, and child tax credits would be collapsed into a single "Family Credit" based on family size.

Some of these changes seem dramatic, but they are compensating for eliminating the Alternative Minimum Tax. The AMT was designed as a parallel system to catch the wealthy who try and avoid paying taxes. The bad thing about the AMT is that it is poised to hit people making as little as $75,000. By eliminating the AMT, the system would need to make up for $1.3 trillion dollars that are normally collected through it.

Despite the unknowns, senior tax analyst Bob Scharin of RIA's Practical Tax Strategies, a professional tax journal, has sketched contours of how the two plans could affect individuals by tax status, income and investment sources. He and RIA outlined several scenarios under the new systems, here are three:

Scenario One

• Customer-service associate (single, no children).

• Income: $30,000 in wages.
• Write-offs: $3,000 deductible contribution to an Individual Retirement Account and the standard deduction with no home mortgage and minimal charitable contributions.
• Current tax bill: $2,455

• Simplified Income Tax Plan: $2,850

• "Growth and Investment": $2,850

Scenario Two

• Married full-time computer programmer and part-time graphic artist (no children).

• Income: $150,000 combined wages; $1,000 interest income, $1,000 dividends and $5,000 long-term capital gains.

• Itemized deductions: $18,000 mortgage interest (with home principal below the regional cap); $15,000 mortgage interest on vacation house, $2,000 home-equity loan interest, $15,000 real-estate taxes, $10,000 state and local income taxes, $5,000 miscellaneous deductions that exceed 2 percent of income and $4,000 charitable gifts.

• Current tax bill: $15,406

• Simplified Income Tax Plan: $23,643

• "Growth and Investment": $24,321

Scenario Three

• Married executive and non-employed spouse (two children).

• Income: $500,000 wages; $10,000 interest income, $20,000 dividends and $200,000 capital gains.

• Itemized deductions: $50,000 mortgage interest on an $800,000 home loan in a region where mortgages would be capped at $400,000 debt; $20,000 real estate taxes, and $35,000 charitable contributions.

• Current tax bill: $155,645

• Simplified Income Tax Plan: $142,748

• "Growth and Investment": $151,140

It's difficult to say exactly what the either of the new tax systems would look like once they go through all the potential edits, but it is clear from these scenarios that at face value they do roughly create the same tax burden as the current system. One benefit from the new systems would allow every taxpayer to use a simpler tax form, less than half the length of the current Form 1040, which may cut in half the number of taxpayers who need to hire a professional to prepare their taxes each year. Expect these proposals to be scrutinized heavily and expect to hear more about these proposals and their progress in the media.