US Tax Panel Nears End Of Consultation

by Mike Godfrey, Tax-News.com, Washington

08 June 2005

There are just three days left for anyone wanting to submit comments to President Bush's Advisory Panel on Federal Tax Reform. On June 10th, the Panel will begin to formulate its conclusions from the mass of input it has received.

"Our goal is to provide tax reform options that are simpler, fairer, and pro-growth, and so it is important that we continue to hear from Americans about the kind of tax system they want," said Senator John Breaux, Vice-Chairman of the Panel. The President's Advisory Panel on Federal Tax Reform was established by President Bush on January 7, 2005 . President Bush has charged the bipartisan panel with recommending reforms to the tax code that will make the U.S. tax system simpler, fairer and more growth oriented.

The Advisory Panel will submit to the Secretary of the Treasury a report containing revenue neutral policy options for reforming the Federal Internal Revenue Code as soon as practicable, but not later than July 31, 2005. These options should:

• simplify Federal tax laws to reduce the costs and administrative burdens of compliance with such laws;
• share the burdens and benefits of the Federal tax structure in an appropriately progressive manner while recognizing the importance of homeownership and charity in American society; and
• promote long-run economic growth and job creation, and better encourage work effort, saving, and investment, so as to strengthen the competitiveness of the United States in the global marketplace.

Major ideas submitted to the Panel include a switch from income to consumption taxation, and the possibility of a flat income tax (as implemented in a number of new member states of the European Union). Under a sample plan drawn up by Michael Graetz, a Yale Law School professor, consumers would pay a 13% to 14% value-added tax on their purchases. Individuals earning less than $50,000 and families making under $100,000 no longer would pay income taxes under such a plan. Those still paying income taxes would get a simplified system and a top tax rate of 25%

Lobby group Americans for Fair Taxation wants a flat consumption tax levied at 23% with exemptions for those on low incomes. But it doesn't sound as if Panel Chairman, Republican Senator Connie Mack, is open to such innovative ideas. "If this is such a great idea, why haven't other political entities around the world pursued it?" he asked.

Testifying before the panel, Utah state Tax Commissioner R. Bruce Johnson, representing the Multistate Tax Commission, noted that state and federal tax systems are deeply intertwined, as most states use federal adjusted gross income to determine state income tax liability. What's more, state and local governments receive about one third of their revenues from sales tax, two issues which Johnson observed will pose serious difficulties in the formulation of a potential national sales tax. "If the federal government were to adopt a Value Added Tax (VAT) or a National Retail Sales Tax, simplification of the federal tax system may be achieved at the expense of greater overall complexity," he remarked.

Sadly, in all probability, the Panel is going to come up with a series of 'simplifications' which will actually make the Tax Code more complicated. There is no radical simplification which doesn't trample on someone's special interest; and in America's introspective, election-obsessed legislature, that is a recipe for inaction.

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