Dissolve the President's tax reform panel

Posted: Oct 14, 2005 12:05 AM

When President Bush formed his President’s Advisory Panel on Federal Tax Reform he charged that panel with developing a tax reform proposal that would achieve three principal objectives:

1.  The proposal should simplify the Federal tax code so as to reduce the costs of tax compliance. 

2.  The proposal should promote home ownership and charitable giving.

3.  The proposal should promote economic growth, job creation and encourage individual saving and investment while strengthening the competitiveness of the US in the global economy.

We now have a clear indication of the proposals that will come from the president’s tax reform panel, and it’s fair to say that not one of the above objectives will be realized, much less addressed.  The tax reform panel, having failed to follow its mandate, should be dissolved immediately and the panel members sent off to create mischief elsewhere.

Former Louisiana Senator John Breaux, who serves with Florida Republican Connie Mack as co-chairs of the panel, announced this week that the panel is not going to seek a wholesale reform of our tax code.  No surprise there.  Why would politicians want to abandon a tax code that has served them, if not the people, so well for generations?  The ability to manipulate tax laws so as to buy votes and reward large campaign contributors is not something we should not expect politicians to abandon without a fight.

If you’re not sitting down, maybe it would be a good idea to pull up a chair.  You are about to learn what this esteemed panel is going to propose to meet the three primary charges contained in the Executive Order which brought them to this tax reform dance. 

First tax reform proposal:  A tax increase for the owners of more expensive homes.   Right now home owners are allowed to deduct the interest on the principal balance of home loans up to one million dollars.  The panel apparently will recommend that this deduction limit be lowered, perhaps to $350,000.  This would mean that taxpayers with loans on more expensive homes will be hit with a tax increase.  Admittedly, this reform proposal will resonate with a good many Americans who wallow in wealth envy, so we’ll give the panel some credit for carrying the banner of class warfare.

The panel’s second tax reform proposal will be to require businesses to pay taxes on a portion of the cost of any health insurance or health care benefits provided to employees.  Right now employer can deduct those costs.  The panel wants to put a limit on what can be deducted.  Result?  A tax increase for businesses.

The panel proposes to spend the tax money gained from these two tax increases to cover the cost of eliminating the hated Alternative Minimum Tax. 

There is nothing in these proposals that would reduce the cost of tax compliance in this country; a cost that by some estimates reaches between $300 and $500 billion a year.  In fact, these proposals will increase the cost of tax compliance as individuals and businesses scramble to find a way to deal with these costly new tax rules.  There is also nothing in these proposals that would in any way encourage home ownership.  You simply do not encourage people to buy homes by threatening their cherished home mortgage interest deduction while raising their income taxes. 

Finally, there is nothing in these proposals that would promote economic growth or individual savings and investment.  You don’t improve America’s competitive position in the global economy by raising taxes.

There is, however,  a proposal that would accomplish the objectives set forth by the president without increasing the tax burden on either the American people or American business.  The proposal is H. R. 25, the FairTax Act, and it is the subject of a book co-authored by myself and by the author of H.R. 25, Congressman John Linder (R. Ga.).

Are the people of this country ready for wholesale tax reform?  The president’s panel thinks not.  Sales of The FairTax Book might indicate otherwise.  The FairTax Book made its debut No. 1 on the New York Times Bestseller’s List.  It is now in its eighth week as a bestseller.  Can you remember the last time a book on tax reform showed this type of strength in the book market?  No?  Well then maybe there’s something to this tax reform proposal that has struck a chord with the American people.

There is no room here to go into depth on the FairTax.   Very briefly stated, H.R. 25 would eliminate all personal and business income taxes, death taxes, Medicare taxes, Social Security taxes, capital gains taxes and the Alternative Minimum Tax.  The FairTax would remove the embedded taxes that exist in the retail price of virtually all consumer goods and services, averaging 22%, and replace those embedded taxes with a 23% embedded consumption tax.  Every American household would receive a monthly check from the government to cover the consumption taxes that would be paid on the basic necessities of life up to the poverty level.  Businesses could operate in America without any tax component on capitol or labor.  Individuals could save and invest without any tax consequences.  The FairTax plan would completely eliminate the federal tax burden for America’s poorest families while bringing unprecedented economic growth and job expansion.  American businesses and American dollars that have fled our crushing tax structure will be able to come back home to work in America without tax consequences.  This is the type of tax reform the American people are looking for, not “business-as-usual” tax increases and politically expedient tinkerings with our already-broken tax code. 

Enactment of the Fair Tax would constitute the biggest transfer of power from the government to the people since the ratification of our Constitution.  Much more information on the FairTax can be gleaned from the website for Americans for Fair Taxation; http://www.fairtax.org.

If the president’s tax reform panel can’t be true to the president’s charge, and respond to the taxpayer’s demands for meaningful reform, it should be dissolved.  Our elected leaders need to listen to the voice of the people, not of a panel of political hacks desperate to preserve the present status quo.