Subj: BUSH TAKES AIM AT TAX CODE
Date: 7/17/2001 2:08:37 PM Pacific Daylight Time
From: Rayelan
To: rmnews_Daily_Emails@egroups.com

Subj: BUSH TAKES AIM AT TAX CODE
Date: 7/17/2001 10:05:50 AM Pacific Daylight Time
From: FairTax@fairtax.unitymail.net (Fair Taxation)
Reply-to: FairTax@fairtax.unitymail.net (FairTax)
To: rayelan@aol.com

New York Times: Bush Now Takes Aim at Tax Code

July 16, 2001 -- BREAKING NEWS! The New York Times reports that the Bush
Administration plans to address . . . "overhauling or replacing the entire
federal tax code."

According to one source, Bush's initiative is "a chance to reignite the
debate."

Join Americans for Fair Taxation today, and help reignite the debate!

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Bush, After Gaining Tax Cut, Now Takes Aim at Tax Code
By RICHARD W. STEVENSON

WASHINGTON, July 15 — Having achieved its initial economic goal of a substantial
tax cut, the Bush administration is making plans to address an even more
ambitious and divisive issue: overhauling or replacing the entire federal tax
code.

The discussions within the White House about changing the way individuals and
companies are taxed are in early stages, and administration officials emphasized
that they are a long way from settling on either policy prescriptions or a
political strategy.

They said the subject would not make it to the top of President Bush's agenda
for at least a year or two and might even be held back to serve as a signature
issue for a re- election campaign in 2004.

At this point, they said, the administration is just beginning to weigh the pros
and cons of the three main options, which are simplifying the existing
progressive income tax system, adopting a single-rate flat tax on income or
moving to an entirely new system that would tax consumption through some sort
of sales or value-added tax.

An overhaul of the tax system "is in the discussion stage," said Lawrence B.
Lindsey, Mr. Bush's chief economic adviser. "The facts are that one needs a
broad consensus before moving on fundamental tax reform," Mr. Lindsey said. "The
process of building that consensus takes time. That doesn't mean you shouldn't
start the process." But in starting an internal review of the options, the White
House is wading into one of the most complex and politically charged topics in
Washington.

Any proposal for a major change to the current progressive income tax system
would surely mobilize armies of lobbyists and interest groups intent either on
preserving existing tax breaks or creating new ones. It would also rekindle a
longstanding debate among economists about the fairest and most efficient way
for the government to raise the revenue it needs.

To Republicans, an overhaul of the tax system promises a new front in their
efforts to limit taxation and rein in or even eliminate the Internal Revenue
Service, which to many conservatives has become the symbol of what they
consider an intrusive and bloated federal government. They say developing a
simpler tax system would remove a huge drag on the economy.

To Democrats, simplifying the tax system is a worthy cause, but one that, when
entrusted to Republicans, becomes a thinly disguised excuse for pushing through
further tax cuts for the wealthy. Most of the proposals on the table, they say,
would shift more of the tax burden onto low- and middle-income
people.

With encouragement from the White House, some of the biggest supporters of a tax
overhaul in Congress are also planning efforts to put the issue back on the
agenda. Representative Dick Armey of Texas, the majority leader in the House and
a longtime advocate of a flat tax, plans to hold a symposium on tax reform next
Monday on Capitol Hill.

The featured speaker will be Mr. Lindsey, whose presence, Mr. Armey said, should
be a clear signal that the administration takes overhauling the tax system
seriously and that the prospects for enacting something are good. "We have
people in Congress who want to push this idea, and now we have people in the
White House who want to promote the same issue," Mr. Armey said. "It's a chance
to reignite the debate."

Democrats said that in floating the prospect of pushing for a new tax system,
the administration was less interested in actually developing a new tax code
than in shoring up support among economic conservatives by being seen as
considering the idea.

Democrats said none of the ideas Republicans might put on the table are credible
because they would all involve heavy costs as the economy shifted from one tax
system to another. The government cannot afford those costs, Democrats said, now
that the tax cut has eaten up most of the projected federal budget surplus.

"They don't have the money to do any of these things," said Representative
Charles B. Rangel of New York, the ranking Democrat on the House Ways and Means
Committee. "This is nothing but a political show."

If Republicans were serious, Mr. Rangel said, they would sit down with Democrats
to consider how the current tax system could be simplified, perhaps by removing
from the tax code many credits that could be reclassified as spending
programs.

But many Republicans, including many senior administration officials, long ago
concluded that the current tax code had become so hopelessly complex and
inefficient that the only way to deal with it was to throw it out and start
over.

Paul H. O'Neill, the treasury secretary, called the tax code "9,500 pages of
gibberish." As head of the cabinet department that oversees the I.R.S., he said
part of his motivation for supporting overhaul efforts "is not liking to
be at the top of an organization that gets the level of ridicule and criticism
for its inability to administer the tax code the way it is."

But Mr. O'Neill said developing a new system would be a technical and economic
challenge — and that any new approach would also run into opposition.

"When you talk about the need to do something, people get up on their feet and
clap," Mr. O'Neill said. "They want this thing fixed. They begin to sit down
when you talk about some of the things that would change to get real
simplification."

The principles guiding the White House are the same ones Mr. Bush enunciated in
the presidential campaign last year: fairer, flatter, simpler.

That formulation is vague enough to encompass any of the main ideas on the
table, all of which have advantages and drawbacks.

"We're going through the merits of each, and each has a lot of merit," said R.
Glenn Hubbard, the chairman of the White House Council of Economic Advisers.

To many conservatives, the most appealing choice is to eliminate the income tax
altogether — and with it the I.R.S. — and raise revenue through a tax on
consumption, perhaps through a national sales tax. Under most versions of a
national sales tax, essential items like food and medicine would be fully or
largely exempt from taxation.

But critics of consumption taxes say they discriminate against lower- income
people, who spend all or most of their income. And they say such a system
encourages the development of an underground economy as people seek to evade
paying a sales tax that by some estimates would need to be between 20 percent
and 30 percent to replace the revenue generated by income taxes.

Economists have also debated European-style value-added taxes, in which a tax is
levied at each stage of production, and then when the item is sold to the final
consumer.

Over the last decade, most attention has been focused on a flat-tax system. As
typically proposed, such a system would tax individuals based on their wages at
a single rate, thereby retaining the basic concept of an income tax, while
imposing what amounts to a single-rate value-added tax on businesses.

Supporters of a flat tax say they could keep the rate on individuals below 20
percent. Critics say that the rate would have to be much higher and that the
system would require taxpayers to give up all or most of their deductions,
including the mortgage interest deduction.

There is also a camp that says the most realistic approach is to overhaul the
existing tax code. This camp generally advocates reducing tax rates in return
for subjecting more income to taxation by reducing or eliminating deductions — a
step that would also make the tax system simpler. The model for this
approach is the bipartisan overhaul of the tax code in 1986, which exchanged
lower rates for fewer deductions and loopholes.

There are also less sweeping proposals on the table. Mr. O'Neill, former
chairman of Alcoa, the aluminum company, said it was worth considering whether
the corporate income tax made any sense, given that the costs were ultimately
passed along to consumers.

One of the big challenges for the White House will be finding a consensus among
the proponents of the different plans. Mr. Armey, who has been pushing a
flat-tax plan for eight years, said he would never support a sales tax because
he did not believe it would be practical.

To see the full text of the article, click on
www.nytimes.com/2001/07/16/politics/16TAX.html

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