Powerful Congressman Could Stop Tax Reform in its Tracks

[Mike]

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You're just jealous, admit it. :l

I'd be interested to see just how effective the current tax system is with regard to encouraging / discouraging various behaviors. I can't help but wonder if there is a way to do this more efficiently and effectively than the current bloated mess of a system that we have.

Long term, I see our tax rates climbing - either in the existing system or via an add-on system (VAT, or some other deal). We're fighting demographic changes, and it's a battle we simply won't win unless we import a bunch of young people that want to have big families... and yet be productive enough not to put a strain on our programs. So to put it bluntly: more demand for entitlements + smaller portion of the population working = growing long-term budget deficit without higher tax rates. If we don't solve these things soon, we are looking at a major conflict down the line. :shock:

 

[Rolo]

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I said saraho...not saraho's Internet boyfriend.

Touching off your good points, Mike...more boiling frogs. If we add a VAT, then we will have state and federal sales tax. Federal income tax was only supposed to be 1. an insignificant, unmissedamount, and 2. temporary. It is neither; now we have substantial state and federal income tax.

Who is to say we won't have income tax and a VAT? Sure, that's not the plan, but a permanent income tax wasn't the plan either.

Flat tax is not a good idea for the reasons you/the chairman mentioned (it is impossible...a pretty good reason) and that it takes away the means to encourage social change and reward responsibility.

 

[Mike]

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Nothing substantive will get done on this issue. A flat tax would be great, but nobody wants to give up their beloved deductions. To keep those in place, the rate assessed under a flat tax system would inevitably be too high for people to stomach (>20%).

A sales tax would face similar problems as Congressmen would fight amongst themselves trying to spare certain items from the tax in order to benefit whatever industry is most important to their district/state.

 

[Rolo]

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I totally agree with the Chairman...good show. Now enough of this Perot-esque talk of tax reform and lets just simplify the beastly tax system we have now. We can start by junking Social Security and replace it with IRA-like incentives.

(cue saraho)

 

[gunner]

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Heading for the hills 80% G 20% F, until I see what Alan will do this week..........

 

[Show-me]

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Sounds like we are a longway away from major reform. Minor maybe.

 

[Mike]

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I figured this applied to the section of this site devoted to taxes... kind of important given the opinions contined herein and who is tied to them (GOP chair of the house ways and means committee through which any attempt at tax reform must get through to have any chance). Pay close attention to the section I placed in bold text. If this is true, any real attempt at reform could very well be dead on arrival in the House, no matter how much pressure Bush tries to apply on its behalf.
Chairman's tax ideas astound GOP [font=arial,helvetica,sans-serif]


BY ROBERT NOVAK SUN-TIMES COLUMNIST


Chairman's tax ideas astound GOP [font=arial,helvetica,sans-serif]

February 10, 2005[/font]

Rep. Bill Thomas of California, chairman of the House Ways and Means Committee, is the ultimate legislative poker player who keeps his hand shielded even from partners. But he showed a few cards during the recent Republican retreat at the Greenbrier resort in White Sulphur Springs, W.Va. His fellow Republican congressmen were astounded.
The chairman's deal bore little resemblance to President Bush's plan for Social Security and tax reform. Thomas indicated he would marry Social Security with total repeal of the corporate income tax, which would be replaced by a value-added tax. As for simplification of individual taxes, he indicated that is off the board, contradicting desires of many GOP congressmen.
As he enters his fifth year as chairman, has Thomas overstepped himself? Social Security reform is a massive legislative undertaking, and he magnifies the difficulty with the additional complicated task of establishing a VAT. Furthermore, he is pressing his own policy without guidance or approval from the White House. He is a masterful, domineering personality who until now has bent Ways and Means and the House itself to his will, but never on an agenda of this dimension.
Bush always intended to pass Social Security reform this year, postponing an unspecified tax reform until an undetermined time in the future. However, Thomas has been suggesting it would be efficient to combine Social Security and tax reform. But Thomas and Bush are on very different wavelengths when it comes to reforming taxes. Bush contemplates an overall simplification of the Internal Revenue Code. Thomas does not.
During the retreat, Thomas revealed some of his cards. While transforming Social Security, he also would repeal the corporate income tax and replace it with a VAT paid by the consumer. Thomas told his colleagues of multiple advantages for the United States in international trade and hinted at a bountiful increase in federal revenue -- money that would be useful in addressing the Social Security shortfall.
Thomas' uncharacteristically buoyant optimism abruptly ended when he turned to the flat tax as a possible simplification of individual taxes. He posed difficult questions to the assembled House members. Would you and your constituents be willing to give up the home mortgage deduction? The charitable contributions deduction? The deduction for state and local income taxes?
Because the answer to all of these questions is obviously no, Thomas went on, the tax rate would have to rise to recapture revenue. But that rate would be too high for low-income taxpayers, and there would have to be at least two rates. There goes your flat tax, with one low rate and no deductions.
This logical recognition of the flat tax as a non-starter has led many in Congress to a different path to reform based on taxing consumption. The ''fair tax'' -- repealing all income taxes and replacing them with a national sales tax -- has attracted 44 House sponsors and interest from no less than Bush and House Speaker J. Dennis Hastert.
At this point, still using the Socratic method, Thomas asked how many of his colleagues' constituents would welcome walking into a store and paying 30 percent of the retail cost with a sales tax. Once again, the answer was no. Thus, he had swiftly ruled out both the flat tax and the national sales tax, and therefore vetoed individual income tax reform.
A tax agenda that eliminates the corporate tax but otherwise retains the horrid complexity of the Revenue Code and establishes a VAT will draw huzzahs from the business lobbyists of K Street who normally balk at tax reform. However, the lethal combination of a VAT and the present federal income tax that Thomas proposes always has been unacceptable to conservatives.
House Republicans at the retreat, including even some Ways and Means members, don't like the hand dealt them by the chairman. The speculation on Capitol Hill that the House will play these cards anyway is based on Thomas' legislative mastery the past four years. But that record was forged in partnership with the president and the speaker. He is going it alone this time.
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