Tax reform panel releases its recommendations

Author: Anchor Kai Ryssdal, Reporter John Dimsdale

Published: October 18, 2005

KAI RYSSDAL, anchor: But first today, something simple, like tax reform. The president has appointed a special panel to recommend changes to the tax code, all three and a half million words of it. And today that group said getting rid of a whole lot of those words would be a good idea. Deductions and credits might go away, and we could be left with fewer tax brackets and less paperwork. MARKETPLACE's John Dimsdale has the story.

JOHN DIMSDALE reporting: The President's Advisory Panel on Federal Tax Reform is set to recommend reducing the number of income tax brackets from six to four. The proposal would also eliminate the alternative minimum tax, which is gradually sweeping more middle-class taxpayers into higher tax brackets. But to afford those lower rates, the tax reform panel proposes to limit or even get rid of many of the tax deductions Americans have long enjoyed, like writing off mortgage interest or employer-provided health and life insurance benefits.

As if those weren't controversial enough, the reformers today signed off on a recommendation to eliminate the federal deduction of state and local income tax payments. The result, says the director of the Tax Policy Center, Len Burman, would be increased pressure on state and local governments to cut their own tax rates.

Mr. LEN BURMAN (Director, Tax Policy Center): You pay 7 or 8 percent to your state in taxes, but you get back a portion of that in reduced federal income taxes. And the concern is that if you got rid of that deduction, it'll be harder for states to maintain income tax rates that would be adequate to fund necessary social services.

DIMSDALE: Burman says eliminating the state and local deduction would bring in enough money to compensate for the revenue lost in the alternative minimum tax. But Stephen Entin, at the Institute for Research on the Economics of Taxation, says that offset isn't necessarily needed. He says lower tax rates will spark more economic growth, which will bring the government more money.

Mr. STEPHEN ENTIN (Institute for Research on the Economics of Taxation): The requirement that they use the standard methods of scoring these things and not take the gross into account was an albatross around their necks, and I think it caused them some considerable grief.

DIMSDALE: The panel is expected to make its final recommendations to the Treasury secretary by November 1st. In Washington, I'm John Dimsdale for MARKETPLACE.