Paul O'Neill Wants To Simplify Taxes

by Mike Godfrey, Tax-News.com, Washington

08 May 2002

Addressing a Small Business Association conference yesterday in Washington, Treasury Secretary Paul O'Neill said the Bush administration could propose a fundamental overhaul to the tax code as early as next year, ideally including an elimination of corporate taxes and all tax deductions and credits, as well as sweeping away the contentious alternative minimum tax (AMT).

"We need to eliminate all deductions and tax credits - everything. If we're really going to have fundamental tax reform so that it's nice and clean and simple, it means the rates could go down by a phenomenal amount," O'Neill said.

The Treasury Secretary, who is unusually outspoken for a public official and has come in for plenty of media attention for his headline-grabbing, off-the-cuff remarks, predicted he would be sharply criticised for revealing his views in public. "I'm going to get blasted for giving you as much as I did, probably," he said.

It has long been a goal of right-wing policy strategists to simplify US taxation, and the Bush administration has for some time said it plans to propose a fundamental reform of the tax code, although the war on terrorism and decline in the budget surpluses have postponed further initiatives on the tax agenda.

O'Neill stressed that he did not have a "fully formed" reform plan but said it was important to set "starry-eyed" goals for reforms, which helps the process by setting a high target. He said the tax code was a burden to the economy because of its complexity, reaching to 9,500 pages, leaving even low-income workers who qualify for tax credits unable to correctly file their returns. Eliminating all tax deductions, such as home mortgage interest payments and credits for having children would help to reduce much of the tax code's complexity and length, he said.

The Treasury Secretary added that a fundamental reform should also do away with the AMT, which was originally brought in to impose tax on rich people who use extensive tax planning to escape all taxes, but because of 'fiscal drag' is now beginning to affect millions of additional middle-class taxpayers.

Removal of the AMT is electorally attractive, and might be the bone which could get support from the Congressional dog, which is otherwise sure to maul any simple piece of legislation to death with endless special-interest amendments. In fact, the Democrat-controlled Senate is probably an insuperable obstacle to fundamental tax reform, since any simpler tax system almost inevitably favours richer people.

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