Flat-Out Un-Fair: Tax Fix More than a Four-Letter Word
President Bush set up the Presidents Advisory Panel on Federal Tax Reform early this year to assist in reforming the Federal Internal Revenue Code to benefit all Americans, according to the executive order that created it. Reform is desperately needed but not if it misses the point entirely. Benefiting all Americans doesnt mean artificially creating winners and losers. Nearly all Americans would agree that the 9 million words of the tax code dont equal a system that either works well or is fair. We dont need the panel to make things worse.
Bush instructed them to propose changes that simplify the tax laws and promote economic growth and job creation. He also required that any changes be revenue neutral policy options. That should mean that our taxes wont go up. But then again, this is Washington. It also means our taxes wont go down, but that is never a surprise.
The first thing the panel did was to make it clear they wanted to put a stake through the heart of the Alternative Minimum Tax (AMT). The AMT is an example of Washington at its scary worst. It was created in 1969 to make sure a few top earners paid at least some tax. But Congress didnt even bother to adjust the AMT for inflation. The number of people who pay has risen to the millions and its estimated that the tax would take about $1.2 trillion from working Americans over the next 10 years.
So to kill the highly unpopular AMT, the panel proposes replacing our home interest deduction with a more limited 15-percent interest credit and taxing health insurance plans above a certain level. Another option it is considering is a progressive consumption tax that would create four new tax brackets and change numerous tax rules.
Those plans dont simplify anything and they certainly dont encourage growth or job creation. They just switch things around rather than actually fixing problems that make the cleanup effort following Hurricane Katrina look small. We have government spending spiraling out of control, long-term obligations for Social Security and Medicare equaling more than $70 trillion and a tax system beyond the ability of mere mortals to understand.
In response to these enormous obstacles, all we are getting from the panel is more of the same. More failed tax plans. More picking the winners and losers in our economy. More business as usual.
It seems that the panel has already given up on major changes to the tax code. Both the flat tax and the FairTax failed to gain their approval. Both of these plans are more than just four-letter words. They would eliminate the ridiculous tax code we now have and replace it with a simpler, more efficient system exactly what the panel was asked to do in the first place. Either system would leave it up to us to pick how we want to spend our hard-earned cash instead of relying on politicians and special interests.
But the tax panel doesnt want that to happen. According to the San Francisco Chronicle, the bipartisan panels nine members include: two former U.S. senators, a former U.S. representative, four professors (two from California), a former Internal Revenue Service commissioner and the chief investment strategist for Charles Schwab. The former senators are Florida Republican Connie Mack and Democrat John Breaux of Louisiana, who both work for firms that lobby Congress.
Who isnt on the panel? Well, we the people who actually pay the taxes, of course. The result is another Washington example of misdirection. Wed like to celebrate removing governments hand from our pocket, but theyre just switching pockets.
Congress has played the game of winners and losers many times in the past. In 1986, they played with tax benefits for commercial real estate. According to the National Association of Realtors spokeswoman Linda Goold, quoted in the October 13 San Francisco Chronicle, Within five years, commercial real estate values had deteriorated 30 percent. Thank you, Congress.
The panels final proposal, due by November 1, appears to be dead on arrival for now. Rational legislators will stand up to the idea of replacing one confusing tax code with another. Meanwhile, the rest of us will continue to pay through the nose, because the presidents panel doesnt really want to fix the tax system.
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The tax panel plans an October 27 teleconference. To find out more about that event, go to www.taxreformpanel.gov.
Dan Gainor is a veteran journalist and director of the Media Research Centers Business & Media Institute.