Homepage

News > Jobs & Economy
    SAVE   |   EMAIL   |   PRINT   |   RSS  
Project 'scrap-that-tax,' day 1
President Bush has called for a 'simpler, fairer' tax code. What does that mean?
February 16, 2005: 4:33 PM EST
By Krysten Crawford, CNN/Money staff writer

NEW YORK (CNN/Money) - Before he leaves office in 2008, President Bush wants April 15 to become a kinder, gentler -- though not necessarily cheaper -- day for taxpayers.

On Wednesday, a bipartisan panel appointed by the president got to work, the first of many meetings that will take place before the July 31 deadline for proposing changes to the federal income tax code.

The panel is led by former senators Connie Mack (R.-Fla.) and John Breaux (D.-La.).

The federal income tax code, in its current form, has few fans. Among the litany of problems cited during Wednesday's meeting: taxpayers spend $115 billion and some 3 billion hours a year complying with a tax code that consists of more than a million words and 600 different forms, schedules and instructions.

Then there are the countless critics who claim some individuals unfairly pay proportionally higher taxes than others.

But there's widespread disagreement on the solutions needed to fix the system.

The most radical idea, espoused by many Republicans, would be to scrap the current income tax code in favor of a consumption tax. By doing so, the government would shift from taxing individuals based on the money they earn to taxing them based on the money they spend.

Another widely-discussed option is to set up a scheme that combines both income and consumption taxes, a dual system that's common in western Europe.

Giving Guidance

Bush has not publicly specified the changes he envisions. He has charged the 9-member panel with finding ways to make the system "fairer," "simpler," and "more pro-growth." He wants proposals to be revenue neutral, meaning they would neither increase nor lower the overall amount of tax dollars collected by the federal government.

Bush has also suggested that, in any new tax scheme, incentives remain for home ownership and charitable donations.

At Wednesday's inaugural meeting, all signs indicated that the panel considers its options unlimited. After former Internal Revenue Service chief counsel Fred Goldberg Jr. gave an overview of the federal income tax code since its inception in 1913, three other experts testified on consumption-tax models, which include a sales tax, a flat tax, and a value-added tax.

A flat tax is a single rate levied at all income levels. The current code does the opposite: tax rates are levied at different levels at different incomes.

The value-added tax, meanwhile, is a type of sales tax in which goods and services are taxed at each stage of production. By the time consumers make their purchase, the sales price includes all the taxes paid.

William Gale, a co-director of the Tax Policy Center, a nonpartisan tax advisory group, spoke out in favor of improving the current tax code instead of scrapping it. A "wholesale" shift to a consumption tax, he warned, would create too much instability and be "fraught with problems."

It's too soon to tell what the panel, due to meet again March 3, has in store.

But tax experts agree on at least two things.

One, Bush has until 2007, when attention shifts to the next presidential election, to push a tax reform package through Congress.

Two, taxpayers can expect, if not a complete overhaul, at least some changes to the federal income tax code.

William Beach, a director of The Heritage Foundation, a conservative think tank, says Congress enacts major tax reform every 15 or so years. Legislators are constantly adding tax incentives and closing loopholes to achieve immediate goals. Over time, said Beach, "you get all these provisions in the tax code that become inconsistent with other provisions and so we do (clean it up) every once in awhile."

Beach says it happened in 1954, in 1968 and again in 1986.

"We're a little overdue," said Beach, noting that nearly two decades have passed since the last overhaul.

Since then, according to testimony at Wednesday's meeting, there have been 10,000 amendments to the code.  Top of page

graphic


YOUR E-MAIL ALERTS
George W. Bush
Taxation
Government
Federal Trade Commission (FTC)
Manage alerts | What is this?