US tax panel set to complete recommendations

Author: Mark Felsenthal

Published: October 17, 2005

A lower U.S. tax rate and a move to tax consumption instead of income are likely topics at the last meeting of a blue-ribbon presidential tax panel, experts who have testified before the group said on Monday.

A panel named by President George W. Bush to recommend changes to make the tax code simpler, fairer, and more conducive to economic growth will hold its last public meeting on Tuesday. The group says it is on track to deliver a menu of recommendations to Treasury Secretary John Snow by Nov. 1.

The panel's proposals come as the president's power to push through a tax overhaul is sapped by the high price tag for relief after hurricanes Katrina and Rita and controversy over the administration's handling of the storms and the war in Iraq, among other distractions, the experts said.

"You have a battle-weary Congress and an administration with significant issues they're confronting on all sides. It's going to be a little harder for the tax reform agenda to make its way to the top of the heap," said Mark Weinberger, who was former assistant secretary of the Treasury for tax policy during Bush's first term.

"Tax reform is going to take some time," he said.

Meanwhile, the group is likely to offer ideas on reducing the range of tax preferences while proposing lowering rates, tax experts said.

"Clearly, a more efficient system with lower marginal tax rates leads to growth, and that's something they would be striving for," Weinberger said.

Among other revenue-boosting ideas that may surface in Tuesday's final session are cuts to deductions for state and local tax payments, tax experts said.

Even though the panel was unable to unify behind a recommendation to consider a partial value-added tax -- one in which goods and services are taxed at each stage of production -- the group may be drawn to including other similar proposals, said Leonard Burman, a senior fellow at the Urban Institute.

"Given the composition of the panel, I'd be surprised if some form of consumption tax isn't an option," he said.

At a meeting last week, group members backed capping the mortgage interest tax deduction and limiting tax benefits for employer-offered health insurance. Both measures, if passed into law, would bring more cash to the government.

The proposals, particularly setting a ceiling of around $300,000 for mortgages for which interest is tax-deductible, immediately drew objections.

"Limiting or eliminating tax benefits will have an adverse impact on housing markets and the value of housing," the National Association of Realtors President Al Mansell wrote the panel.

Those gains in revenue could counterbalance the loss in government receipts from one key objective of the panel: the repeal the alternative minimum tax, a provision aimed at ensuring individuals with many tax breaks pay at least some tax.

The AMT was originally aimed at wealthy taxpayers, but an expiring law is expected to expose a broad segment of middle-income earners to higher taxes in 2006.

"If they really fix the AMT, one could interpret that as a major overhaul," said Douglas Shackleford, a professor of taxation at the University of North Carolina's Kenan-Flagler Business School.

The panel has also agreed to support a blanket charitable giving deduction, which would also come at cost to the to government.