Tax Experts Predict No Big Shifts

Author: Jonathan Weisman

Published: January 10, 2005

Tax experts said yesterday they expected President Bush's new tax panel to recommend incremental change to the tax code, not a fundamental replacement.

The president reiterated his intent to push wholesale changes to the tax code that would make it simpler and more conducive to economic growth, but outside experts say that is now unlikely.

The composition of the panel, with only one of its nine members being a tax policy expert, coupled with time limits and the requirement that any proposal be revenue-neutral, indicate that an incremental approach will be taken, they said.

"Maybe they'll end up talking about a number of alternatives available, but I find it hard to believe at the end of this process, they're going scrap the income tax," said Joel B. Slemrod, a tax economist at the University of Michigan.

The executive order creating the panel dictated that any recommendations raise as much revenue as the current tax system, reduce the cost and burden of tax compliance, maintain "appropriate" progressiveness in the tax code, include tax benefits for homeownership and charitable giving, and promote savings, investment and economic growth.

Perhaps most importantly, the panel was given a relatively short deadline of July 31. In contrast, the Social Security Commission that Bush created in 2001 took nearly a year to craft three separate overhaul options for the Social Security system. President Ronald Reagan's Treasury Department took all of 1984 to complete the first of two tax proposals that spurred the mammoth tax simplification law of 1986.

"That's the complete, utter insanity of this whole exercise," said Bruce Bartlett, a conservative economist with the National Center for Policy Analysis. "Either they will come up with something completely superficial in that timeframe, or they won't meet the deadline."

The panel will be chaired by former senators Connie Mack (R-Fla.) and John Breaux (D-La.), two widely popular political hands who would be helpful pushing any proposals.

Also on the panel is James Poterba, an economist at the Massachusetts Institute of Technology hailed as one of the sharpest tax policy experts in the United States.

"Poterba's assignment would be a very encouraging sign, but the rest of the panel seems to be representing views other than the academic study of tax reform," said William G. Gale, a tax policy expert at the Brookings Institution.

Other members include Bill Frenzel of the Brookings Institution, a long-time member of the House Ways and Means Committee. Frenzel has spoken of the political folly of tax simplification.

"If you clean the tax code down to a flat tax applying to everybody, within five years it will be just like it is now," Frenzel said in 2001.

Edward P. Lazear of Stanford University is a renowned labor economist. Timothy J. Muris, who recently resigned as chairman of the Federal Trade Commission, is known for spearheading the "do-not-call" list for telemarketers. Before that, he made his name in antitrust, regulatory, and federal budget policies.

Elizabeth Garrett, a law professor at the University of Southern California and an aide to former senator David L. Boren (D-Okla.), has written extensively on electoral issues and politics, but not taxes. Liz Ann Sonders, chief investment strategist at Charles Schwab Corp., was invited last month to the president's economic forum not to talk about tax policy but to throw her voice behind Bush's effort to introduce personal investment accounts into Social Security.

Finally, Charles O. Rossotti, a senior adviser at Carlyle Group, expressed grave frustration with the complexity of the tax code when he was President Bill Clinton's internal revenue commissioner. But beyond his expertise on tax code administration, he has never stepped forward as a tax policy expert.

"This is not a lot of people who have spent a lot of time thinking about tax reform," said Leonard Burman, who was tax policy chief in Clinton's Treasury Department. "It is an odd collection."

Michael J. Graetz, a Yale Law School professor and specialist in tax policy, disagreed. It was wise for Bush to avoid stacking the panel with tax experts already identified with particular tax plans, he said. Poterba, "one of the foremost public finance economists in the country," will anchor the panel, Graetz said, and other members will provide some political muscle.

"If you had asked me to imagine possible panels, I could imagine many worse and few better," he said.