US panel offers measures for simplifying tax code

Author: Anchor Renee Montagne, Reporter Wendy Kaufman

Published: October 21, 2005

RENEE MONTAGNE, host: Rethink the federal income tax. That was the charge given to a presidential panel on tax reform earlier this year. The panel came back with two very different approaches. One would streamline the current tax system. The other would represent a fundamental shift in how businesses are taxed, taxing consumption rather than income. NPR's Wendy Kaufman reports.

WENDY KAUFMAN reporting: Jeff Kupfer, the executive director of the tax panel, says the mandate was to identify the deficiencies in the current system and come up with recommendations for a tax system that was simpler, fairer and more conducive to economic growth.

Mr. JEFF KUPFER (Executive Director, Tax Reform Panel): The president directed the panel to recognize the importance of home ownership and charitable giving in our society, and the president also, in defining fairness, indicated that progressivity is an important element of fairness.

KAUFMAN: The panel, whose chair and vice chair are former US senators, isn't an elected body. And Kupfer says that allowed the panel to develop recommendations without worrying too much about whether their ideas would be accepted on Capitol Hill. The panel will present two different tax plans to President Bush on November 1st. One would streamline and simplify the current tax structure. Form 1040 would consist of just a single page, and the number of schedules and forms that could be attached would drop from more than 50 to 10. It would cut the number of tax brackets to four and cap the highest at 33 percent instead of the current 35 percent.

The other plan represents far more sweeping, even fundamental reform for business. It would tax business on the difference between its receipts--the money it brings in--and the money it pays out--its expenses. Those expenses would include purchases of assets and equipment. Many economists believe this approach spurs economic growth. Both plans would eliminate the alternative minimum tax. Both would provide more opportunities for tax-free savings. But both plans would cut back popular tax benefits given to many homeowners. The mortgage interest deduction would be replaced with a smaller tax credit, and deductions for state and local taxes would be eliminated.

Mr. LEN BURMAN (Co-director, Tax Policy Center): I'd be flabbergasted if the proposals went anywhere right now.

KAUFMAN: Len Burman is co-director for the Tax Policy Center, a joint, non-partisan program of the Urban Institute and The Brookings Institution.

Mr. BURMAN: Major tax reform involves a lot of winners and losers. The president would have to be able to explain to the American public why it was in their interest in a lot of cases to pay more tax now in exchange for a better tax system to go into the future.

KAUFMAN: On Capitol Hill, members of two of the most powerful congressional delegations, California and New York, were wasting no time in criticizing proposals that would raise taxes for homeowners in their states. California Senator Dianne Feinstein.

Senator DIANNE FEINSTEIN (Democrat, California): It is a $17 billion tax increase for California homeowners, and that's unacceptable.

KAUFMAN: Though these proposals may not get very far in the political arena, Len Burman at the joint Tax Policy Center gives the tax panel credit for at least raising issues that could lead to significant tax reform within the next decade. Wendy Kaufman, NPR News.

MONTAGNE: This is MORNING EDITION from NPR News. I'm Renee Montagne.

STEVE INSKEEP (Host): And I'm Steve Inskeep.