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Bush's latest disaster

A tax code overhaul was going to be one of the more ambitious elements in Bush's second term domestic agenda. It sounded like a great idea for me, and long overdue, even though I knew that any significant restructuring was going to be an uphill battle. Nevertheless, if Bush's proposal looks anything like what his advisory panel recommended, I'd much prefer that he drop the whole thing.

Ideally, overhauling the tax code would result in massive simplification. That's kind of the point, see? In fact, I wouldn't mind seeing the income tax replaced altogether, by something like this, for example.*

No such luck. Bush's commission's proposed plan (astonishingly) leaves the existing nightmarish tax code largely intact. There are a few (very minor) rate reductions, added almost as an afterthought. The bulk of the committee's effort was clearly aimed at the elimination of the Alternative Minimum Tax (AMT).

The AMT is as insidious beast, and I'm all for getting rid of it. But the cost of doing so, according to this plan, comes at the expense of some very politically important deductions -- namely, mortgage interest and local taxes. In other words, the committee recommends eviscerating some of our most cherished tax deductions in order to stave off a threat that most people probably don't even know exists. Politically, this is very, very stupid.

What's worse, we'd end up with a tax code that is no simpler and no more manageable than the existing mess. Now I know there are legitimate arguments for eliminating most, if not all, income tax deductions, including mortgage interest. But the only way such a move can be made palatable is if it leads to a massively simplified tax code -- a completely flat tax, for example.

I think what Bush should do is simply ignore the commission's report and start over from scratch, with his own economic advisors, although that's something he's probably unwilling to do. Shy of that, he should simply and quietly shit-can the whole idea. The worst-case scenario would be to try to kick this political dog home, knowing it's a dog, simply so that he can chalk it up as a legislative victory, shades of Bush's disastrous Medicare bill. Let's hope that doesn't happen.

*The only compelling argument I've heard against scrapping the income tax altogether in favor of a consumption tax is that Congress would later resurrect the income tax, making us worse off than before. That's a legitimate fear, but if we allow ourselvs to be paralyzed into inaction by such a fear, it makes any meaningful reform essentially impossible.


That's Our Bush!

How's that big mandate holding up from that overwhelming re-election just a year ago?

"I plan on spending that political capital..."

You're all tapped out, W.

Yeah Barry, it looks like a disaster.

The AMT is a terrible tax...always has been and what's more, it's virtually designed to be patently and grossly unfair.

If the move isn't one away form the productivity tax (the graduated income tax) and toward some form of consumption based tax, like the "Fair Tax" or NRST, then they'd just as well leave that issue for a guttsier administration down the line.

I think the real problem with switching to a consumption tax is one of appearance. A consumption tax mainly benefits the rich in that it spreads the tax burden to pretty much everyone, including those who don't current pay taxes. That opens the door to characterizing the reforms as class warfare.

My solution? Congress needs to tax less by spending less.

In the current tax system, the wealthy pay around 23% due to the presence of numerous loopholes. Naturally the tax code will not be changed to correct for that. As it stands, the tax code is patently unfair and created that way intentionally.

It sure would be nice if he had some principles when it came to the government's role in the economy.

He hasn't vetoed a single bill in his five odd years of presidency. This is a Republican president who has apparently never met a spending bill he didn't love.

It's funny. He's got a backbone when it comes to Iraq--no matter how much flack he gets at any given moment, he's going to do what he thinks is the right thing to do.

But when it comes to spending and taxing, it's like the only thing he cares about is what's marginally more popular at any given moment.

Where's a Reagan when you need one...

First, CRB you're right that that's the tack that opponents will take no matter what, BUT the "Fair Tax" does take that into account, by kicking in only after the first $25,000 or $32,000 of personal spending, depending upon the rate analysis used. Moreover, some goods are taxed less and others more, for instance, basic foods (milk, bread, etc), medicines and farm equipment would carry a very small tax and some very high end goods would have a rather high consumption tax.

The idea is that even despite the higher taxes on many luxury goods, people keeping all of their earned income would often be able and willing to splurge on some luxuries and this form of taxation would hardly change the spending habits of the truly rich, who rarely pay income taxes anyway, as the truly wealthy either earn most of their "income" in the form of Capital Gains on investments, dividends, tax sheltered Trusts and Annuities, etc, often totaling even less than the 23% DBK mentions.

Personally, I'd love to see productivity unfettered and unpunished and the tax burden placed where it belongs, on personal spending/consumption.

Yikes, you all need to take a look at Neal Boortz Fair Tax book for some ideas, though i'm sure some of you are already familiar with it. I like.

This merely proves what I have said for years: that Steve Forbes flat tax and its imitators are DOA.

Just listen to the uproar over the proposed eliminations and then add charities, tax-exempt income, etc. and realize how many groups will be really POed!

I actually like most of the Fair Tax ideas. But I would not get rid of the Estate and Gift Tax (which I believe help prevent wealth accumulation among families). I would also not ditch the Capital Gains Tax and the tax on dividends (which benefit primarily the better-off of society). Then we could have an even lower sales tax than the 23% that the Fair Tax people propose. And I would totally exempt health care expenses (including drugs) from the Sales Tax.

But I have to disagree with your assessment that the panel's plans do not make the tax code much simpler. They dispense with almost all deductions and exemptions, which would hack a huge chunk out of the U.S. Tax Code.

You fail to mention that even though the mortgage interest deduction is scrapped by the panel's plan, it is replaced by a mortgage interest credit, which all taxplayers can claim, not just those who itemize. And the credit is capped at a more reasonable amount, so that the wealthy cannot claim a credit for all of the interest on thier million dollar-plus houses.

Tracy, just eliminating deductions and exemptions and NOT doing away with the estate tax, gift tax, tax on dividends doesn't smell of "progress" to me.

The Fair Tax cannot have all the deductions for healthcare and drugs and food and clothes, because the RICH spend bookoos on that stuff. Why not just exempt the poorest from having to pay these taxes (since it hurts worse for them) through something like a 'prebate'?


Eliminating most of the deductions and exemptions, despite what you claim, would be a HUGE simplification of the tax system. I explained my rationale for keeping those other taxes.

I would exempt only the taxes on healthcare, not food and clothes. The rich may spend a lot on healthcare, but that's OK. Many poor people spend a lot, too. My parents (who are definitely poor), would spend over 50% of their income on drugs alone if they had to pay retail. Many poor people have similar circumstances.

I am in agreement with the Fair Tax idea of a "prebate", to help people below the poverty line.

Eliminating exemptions, etc.. may SIMPLIFY the tax code, but it isn't an improvement in my book, that's all (i'm all for wealth-accumulation, even through inheritance). I want a system that is "fairer" to everyone, regardless if they are well-off or not. I want to make the US more attractive to corporations who have moved away to other countries and i want less evasion and loop-holes. I want simplification too, but "soak the rich" is very simple, but not better.

Health care costs would be a lot more realistic (lower) in the US if the system operated on a more free-market basis (not holding my breath). Admittedly, though i'm no expert on the medical industry.

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