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Bush extends tax reform deadline
President gives panel more time to recommend changes; move keeps public debate on Social Security.
June 16, 2005: 6:15 PM EDT
By Krysten Crawford, CNN/Money staff writer

NEW YORK (CNN/Money) - In a move intended to keep the focus on Social Security and other pressing legislative issues, President Bush has extended until the end of September a deadline for a panel to submit recommendations for reforming the federal income tax code.

The President's Advisory Panel on Federal Tax Reform, which has spent the last five months holding public hearings on the tax system, was originally due to release a proposal by July 31. Bush signed an order Thursday extending the deadline to Sept. 30.

Taylor Griffin, a Treasury Department spokesman, said the panel was on track to meet its earlier deadline, but said Treasury and White House officials felt that this summer's legislative plate was already full. He cited a number of top priorities, including Social Security, a new anti-terrorism bill, judicial nominations, and the budget.

Clint Stretch, the director of tax policy at Deloitte Tax, a unit of the accounting giant Deloitte & Touche, was not surprised by the delay.

"I don't think it changes the long-term timing of (tax reform). This was going to be next year's issue in any event," said Stretch. By pushing the deadline back, Bush can work on building momentum for tax reform throughout the fall in preparation for a 2006 battle rather than have it "sitting out there for five or six months."

"The other thing it does is allow him to keep the focus on Social Security in the waning days of this Congress," said Stretch. "If you put this proposal out at the end of July, the conversation shifts."

Bush, making good on a campaign promise last year, appointed the nine-member panel in January. Led by former Republican Senator Connie Mack of Florida and former Democrat Senator John Breaux of Louisiana, the panel was given a lot of leeway to make recommendations ranging from the radical to piecemeal.

Bush has said only that he wants a reformed code that is simple, fair, and revenue neutral -- meaning it doesn't increase or decrease tax revenues. He also said he wants to preserve tax incentives for charitable giving and home ownership.

The call for a substantial overhaul of the income tax system enjoys widespread support. The last time major changes were made to the code was in 1986. History has shown that Congress undertakes significant tax reform every 20 years or so because the tinkering that happens every year eventually makes the code untenable.

While there's consensus about the need for a fix, there's considerable disagreement on the appropriate remedy.

Among the leading suggestions: abolishing the income tax code altogether in favor of a national retail sales tax or some other system that taxes consumer spending instead of incomes. Critics say such a system would be unworkable because it inherently subjects lower-income taxpayers to a higher tax burden given they spend a larger proportion of their incomes than the wealthy do.

Another popular idea is to eliminate or radically overhaul the alternative minimum tax (AMT), a separate tax system that was originally intended to make sure the wealthiest Americans pay taxes but one that, for various reasons, is hitting more middle-income taxpayers every year. The AMT effectively raises tax bills by eliminating common deductions allowed under the regular tax code, like those for state and local income taxes.

For more on tax reform and related ideas, click here.  Top of page


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