Alan Sloan: Big Guys Win Again. This Is Tax Reform?

MSNBC.com
Big Guys Win Again. This Is Tax Reform?
By Allan Sloan
Newsweek

Nov. 14, 2005 issue

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The commission's report will set the agenda for dealing with this plague. As you'll recall, the proposals call for eliminating the AMT, cutting taxes on income from investments and making up for lost tax revenue by shrinking or eliminating deductions for home-mortgage interest and state and local taxes. This has been portrayed in political terms, as allowing low-tax, low-housing-cost Red states to benefit at the expense of high-tax, high-housing-cost Blue states. But if you crunch the numbers in the commission report, you see this isn't about Blue and Red. It's about wealth.

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The problem here isn't the commission members — it's the instructions that Bush gave them. (You can find the report and Bush's executive order creating the commission at taxreformpanel.gov.) Bush didn't ask the panel to design the best possible tax plan. He predetermined the outcome by ordering that investments and businesses be treated more favorably and that the "reformed" tax system produce the same revenues the current system produces. Keeping tax revenues the same while giving tax breaks to corporations and families with lots of investments requires extracting extra taxes from everyone else.

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My favorite example of how the commission favors people with capital at the expense of those without are the proposed Save at Work accounts that would replace 401(k)s and such under the Growth and Investment plan. Workers now contribute pretax dollars to 401(k)s, but the commission proposes that they use after-tax dollars (box 7.2, page 160). That's great for people who already have plenty of money, but makes it much harder for those trying to bootstrap their way to a comfortable retirement.

The solution? We ought to do what the commission proposes and kill the AMT — but take another stab at fixing the tax code. Let's flash back to 1986, when Congress gave us true tax reform by eliminating popular deductions like sales tax (which Congress has since restored) and credit-card interest. Dividends, which now get special treatment, were taxed the same as wages. People shared pain — and shared gain, too. Make a proposal like that today, and you'd have a report that would leap off the shelves, not be buried on them.


URL: http://www.msnbc.msn.com/id/9935132/site/newsweek/