WASHINGTON – Disappointed by recommendations from President Bush’s advisory panel on tax reform, a group of free-market economists will try their hand at overhauling America’s tax structure and are set to form their own unofficial advisory panel this week, prospective members told The New York Sun.
The group’s goal will be to present an alternative set of tax-reform proposals for the president’s consideration before the State of the Union address in January, when he is next expected to deal seriously with the issue of restructuring the nation’s tax system.
Among the economists and scholars likely to participate are the vice president and chief economist of the Free Enterprise Foundation, Lawrence Hunter; a scholar at the Heritage Foundation, Daniel Mitchell; a former Reagan administration Treasury official and Kemp Commission adviser, Stephen Entin, currently president of the Institute for Research on the Economics of Taxation; the president of the Tax Foundation, Scott Hodge; a scholar at the Cato Institute, Chris Edwards; a partner in the Argus Group, David Burton, and a supply-side economist, Richard Rahn.
Together they will attempt to strike a harder blow against the complexities of American taxation than that delivered by the president’s tax reform panel in its suggestions last week, prospective members said. Mr. Rahn called the proposals of the president’s panel, headed by a former senator of Florida, Connie Mack, and a former senator of Louisiana, John Breaux, “insufficiently bold.” Mr. Rahn described the panel’s conclusions as “another lost opportunity” for a serious debate on taxation.
The Mack-Breaux Commission’s final report will be presented to Treasury Secretary Snow on November 1. Mr. Snow, in turn, will present his findings to the president, who White House spokesmen have said will make tax reform a priority early next year.
Charged with making American taxation simpler and fairer, the Mack-Breaux Commission proposed two avenues for reform. One suggested the abolition or streamlining of a constellation of deductions and exemptions, and included ending the alternative minimum tax and eliminating federal deductions for state and local income taxes. Limits were placed on the deductions for home mortgages, and the number of income-tax brackets was reduced to four from six.
The panel’s second, alternative plan recommended a “progressive consumption tax” accompanied by several proposals to encourage investment by business.
Neither proposal, however, appealed to some of America’s fiscal conservatives and free-market scholars, many of whom have said the panel missed the point of their task and accused them of “tinkering around the edges.” Economists have also faulted the group for narrowing the president’s options on tax reform by presenting only two choices, neither of which dispenses with certain unjust and economically stifling provisions of the current tax code.
Mr. Rahn, a former chief economist of the U.S. Chamber of Commerce, said the presidential panel was handicapped by politics, and “ill-formed to begin with.”
“If you’re serious about really changing the tax code,” Mr. Rahn said, “you’ll get people who are serious students of tax policy who will look at the evidence, and who won’t be driven by political considerations, as clearly this commission was driven.”
Serious students of tax policy will be gathering today to discuss the formation of their own tax-reform panel, Mr. Hunter said. A formal announcement is likely to come later this week. The economists, Mr. Hunter said, will “go back to the blueprints,” scrapping all of the assumptions that define the current tax system and incorporating lessons from previous attempts at tax reform.
“There’s a body of evidence out there of what works and what doesn’t,” Mr. Rahn said.
“What we learned is that you should not have steeply graduated rates,” Mr. Hunter said, referring to work done by President Reagan and by the 1996 Kemp Commission, headed by Jack Kemp, the former congressman of New York, which advocated replacing the current bracketed system with a flat tax.
One key component of any just and economically sound tax code, Mr. Hunter said, is single-rate taxation. The other, according to Mr. Rahn, is the elimination of “double taxation of savings and investment.”
President Bush’s tax-reform panel, Mr. Hunter said, should have come up with several different options based on a complete restructuring of the tax base, which, Mr. Hunter said, was the root of the problems with the current system.
“Given the way taxable income is defined, it gets taxed two, three, even four times,” Mr. Hunter said. Instead of having Americans pay taxes on money they earn, money they spend, money they save, and money they invest, Mr. Hunter said, the fairest measure of taxable income would be income that is consumed.
The alternative panel’s report would come up with “seven or eight different ways to construct the tax system that satisfies all the different principles” of fair taxation, Mr. Hunter said. The report, he said, would outline reform proposals based on the various accepted schemes for codifying those free-market principles, including a flat tax, a national sales tax, a business transfer tax, and a consumed income tax to replace the current levies on personal and corporate income, Mr. Hunter said.
“I personally don’t believe you can ever fix this code by going in and putting a red circle around a list of deductions or so-called loopholes you want to close,” Mr. Hunter said of the presidential panel’s recommendations. “It didn’t work in 1986, and it won’t work in 2006.
“This group we’re talking about putting together is going to come out and say what the Kemp Commission’s report came out and said: that the current system cannot be fixed, and has to be scrapped. You have to start over,” Mr. Hunter said.