Bush Plans Tax Code Overhaul
Bush Plans Tax Code Overhaul (WaPo)
The Bush administration is eyeing an overhaul of the tax code that would drastically cut, if not eliminate, taxes on savings and investment, but it is unlikely to try to replace the existing tax code with a single flat income tax rate or a national sales tax, according to several sources familiar with ongoing tax deliberations. During his reelection campaign, President Bush piqued interest among conservatives and liberals alike when he said replacing the income tax with a national sales tax was “an interesting idea.” Just after the election he signaled that tax policy would be a centerpiece of his domestic agenda, reiterating his pledge to name a bipartisan panel to draft a fundamental tax reform proposal. That sent conservatives scurrying into either the flat tax or sales tax camp to muster political momentum. But before the tax panel is even named, administration officials have begun dialing back expectations that they will move to scrap the current graduated income tax for another system.
Instead the administration plans to push major amendments that would shield interest, dividends and capitals gains from taxation, expand tax breaks for business investment and take other steps intended to simplify the system and encourage economic growth, according to several people who are advising the White House or are familiar with the deliberations.
The changes are meant to be revenue-neutral. To pay for them, the administration is considering eliminating the deduction of state and local taxes on federal income tax returns and scrapping the business tax deduction for employer-provided health insurance, the advisers said. As the tax discussion takes shape, “we’re not talking about a replacement system,” said a former White House aide familiar with the emerging policy.
But we’re supposed to be talking about a replacement system! This is disappointing on a number of levels. Not only does it do very little to alleviate the problems that Bush citied in the campaign–the incredible amount of time and money that simply complying with the current system consumes–but it actually strikes me as harmful. If we’re going to maintain a wasteful, complicated, incentive-laden system of wealth redistribution disguised as a taxing mechanism, surely incentivizing provision of health insurance is more advantageous than shielding real investment income from taxation.