| Associated Press Columnist Mary Dalrymple Says! |
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The "major changes" the President's Advisory Panel on Federal Tax Reform aren't going to be very major at all. There are two proposals coming out of this panel and both are fatally flawed.
First, neither plan eliminates the power of the Internal Revenue Service (IRS) to intrude into our lives. This should be a non-negotiable end-result of any tax simplification plan. The power the IRS has to destroy personal lives and businesses is too broad, too vast and too easily abused as can be documented by more cases than I have the space to list here.
Second, neither plan fully eliminates the influence of K Street lobbyists who push for tax breaks for special interests that when passed by Congress end up complicating and convoluting the tax code. The efforts of these lobbyists are a key reason as to why the current tax code contains over 7000 sections that are often contradictory to one another and thereby give the IRS its abusive powers.
According to the AP report:
Quote
Under one plan, individuals would pay no tax on dividends paid by U.S. companies and exclude 75 percent of their capital gains from taxation. Under the second plan, all investment income would be taxed at 15 percent.
Both proposals would abolish the alternative minimum tax, a levy originally drafted to prevent wealthy individuals from escaping taxation but increasingly reaching into the middle class. They also would eliminate federal deductions and credits for mortgage interest, state and local taxes and education, among others.
The advisory commission would replace those withdrawn tax breaks with simpler benefits, including three savings plans that supplant dozens currently available for retirement, medical expenses and education.
This is merely a whitewashing of the current system and won't help at all.
The system needs to be scrapped and rebuilt.
Panel To Recommend Major Tax Law Changes
Mary Dalrymple
Associated Press via My Way News
November 1, 2005
| The Tax Panel Struck Out!
The FairTax would be a Home Run! |
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Nov. 7 (Bloomberg) -- Last week, the president's advisory panel on tax reform presented its final report, "Simple, Fair & Pro-Growth: Proposals to Fix America's Tax System."
Why should something touted as simple take 240 pages, not including the appendix, to explain?
No one can criticize the goal of tax reform. As the nine- member panel said in its cover letter to the secretary of the Treasury, the current tax code's "myriad tax deductions, credits, exemptions, and other preferences may be a practical way to get policy enacted, but it is a poor way to write a tax code."
If you were hoping for bold strokes and big ideas, you will probably be disappointed by the reduction in the number of tax brackets from six to four (Plan A) and the limit on the deductions for mortgage interest and state and local taxes without a significant offsetting cut in marginal tax rates.
"They squandered an opportunity to do something bold that would make a difference to the American people," said David Burton, a partner at the Argus Group, a law and government- relations firm in Washington. The two proposals are "a terrible place to start" to overhaul the tax system and would be "a marginal improvement at best if this is where we end up."
Give First
Rule No. 1 of tax reform is give before you take away. If you are going to cap the mortgage deduction, even if it wouldn't affect most homeowners, you had better give the American people something in return: a low, single-rate tax, for example, or a national retail sales tax that eliminates the tax code (and the 16th Amendment) and the massive infrastructure required to enforce it.
One of the panel's proposed "gifts" was the repeal of the alternative minimum tax, which was designed to capture millionaires exploiting loopholes but each year ensnares more and more middle-income Americans. (Flat-tax advocate Steve Forbes calls the AMT the mandatory maximum tax).
"To repeal the AMT we had to find $1.2 trillion in revenue" over the next 10 years, said panel member Liz Ann Sonders, chief investment strategist at Charles Schwab & Co. To do that, "we had to go for the biggest expenditures: state and local taxes, health care and mortgages."
Plan A is the Simplified Income Tax Plan (at least they didn't call it "simple"). It eliminates the AMT, removes the tax on dividends and cuts the capital gains rate (on stocks, not other asset classes) to a maximum of 8.25 percent.
Bracket Creep
Plan B, the Growth and Investment Tax Plan, features three tax brackets, a single (15 percent) rate at which dividends, capital gains and interest income are taxed, and a provision for the immediate expensing of new business investment. It also kills the AMT. The plan moves ``the tax code closer to a system that would not tax families or businesses on their savings or investments,'' the panel said in its report.
While Plan B moves in the direction of taxing consumption, a goal that many economists favor, it does nothing to remove "the irresistible temptation to pile on surtaxes or more brackets," said Pete Sepp, vice president for communications at the National Taxpayers Union in Washington. "It took less than four years for Congress to add a third bracket after the 1986 tax reform act."
Paradise Lost
Almost everyone would agree that the primary purpose of the tax code is to raise revenue for the government. (We may disagree on what the legitimate functions of government are that compete for that revenue, and on whether income or consumption should be taxed.) We can also agree that the code should be fair: It should not reward some groups and special interests at the expense of the others.
It should encourage economic growth, not tax-avoidance. Currently individuals and businesses make decisions for non- economic reasons, just to avoid or reduce their tax liability.
The code should not favor sophisticated individuals and corporations -- whoever has the best tax accountants, wins -- over ordinary, unsophisticated taxpayers.
And it shouldn't be tampered with every year in a congressional free-for-all, with members handing out tax breaks to favored constituencies.
When one considers that Congress will water down any proposal to an unrecognizable form in order to preserve its power, then the panel's starting point isn't nearly radical enough.
Coming Up Short
"I can sum it up in one word: tinkering," said Tom Wright, executive director of FairTax.org, a grassroots organization that advocates a national sales tax and repeal of the income tax.
The two proposals represent ``the same old kind of legislation, with no inherent immunity to special interests or lobbyists,'' he said. ``They have done nothing to get the taxman out of our lives.''
That wasn't one of the panel's missions, as outlined by President George W. Bush on Jan. 7. The panel was asked to come up with options to make the tax system simpler, fairer and more pro-growth. They were to reduce the costs of compliance, maintain progressivity, recognize the importance of homeownership and charity, promote economic growth, job creation, saving and investment, and be revenue-neutral.
It was a tall order. It's too bad the panel came up short.
To contact the writer of this column:
Caroline Baum in New York at: [email protected]