INCOME TAX REFORM Panel calls for simplicity

WASHINGTON (AP) -- Declaring the income tax system "has become a running joke," a presidential panel on Tuesday recommended rewriting the nation's tax laws by eliminating virtually every deduction and credit and replacing them with simpler benefits for more taxpayers.
Treasury Secretary John Snow said he would study the report, issued by the President's Advisory Panel on Federal Tax Reform, and hoped to present formal recommendations to President Bush later this year.
"These are bold recommendations," Snow said. "These are recommendations that will challenge orthodoxy in a lot of ways on tax policy."
Some observers questioned whether a comprehensive tax revision could be enacted anytime soon, given Congress' preoccupation with hurricanes, war and federal budget deficits.
"The timing right now seems a little off," said Lindy Paull, co-managing partner at the Washington National Tax Services of PricewaterhouseCoopers and former chief of staff for the committee that advises Congress on tax matters. "To try to do something fairly comprehensive, I think, takes more than the time that Congress will have to devote to it next year because of the election."
The nine members of the commission said key recommendations would be unpopular.
"Many stand waiting to defend their breaks, deductions and loopholes, and to defeat our efforts," the group said in a letter to Snow.
Suggested changes
Marginal tax rates would be lower for individuals and businesses under two alternative tax systems endorsed by the panel.
Both would eliminate most deductions and credits in an effort to simplify tremendously complicated calculations. The second of the two tax systems aims to reduce taxes on savings and investments made by businesses and families.
In place of tax breaks, the panel would create a few tax credits and three savings accounts that it said would encourage homeownership, charitable giving and saving while also supporting lower income workers and their families.
For taxpayers, those changes would shrink the length of their tax forms and reduce the need for professional help. Taxpayers at varying income levels would pay roughly the same amount of tax as they do now, the report said.
The panel sharply criticized lawmakers' tendency to use the tax code to promote their policy agendas, noting there had been 15,000 changes in tax laws since the last major rewrite in 1986.
Snow and the panel's members urged lawmakers and taxpayers to look at the package as a whole, not to concentrate solely on benefits lost.
Quick criticism
Very quickly, however, the panel heard criticism of its decisions to limit or scrap deductions for mortgage interest, health insurance premiums and state and local taxes.
"Unfortunately, President Bush's tax panel is a Trojan horse, using so-called simplification to cut taxes for the wealthy while increasing taxes for middle-class families," said House Minority Leader Nancy Pelosi, D-Calif.
Sen. Jim DeMint, R-S.C., said the recommendations didn't go far enough. "We need comprehensive reform that will make America the best place in the world to invest and do business," he said.
"It's hard to see how they overcome some of the intrusions onto really pretty sacred territory," said Clint Stretch, director of tax policy for Deloitte Tax.
Mark Weinberger, a former Treasury Department official who is now Americas vice chairman at Ernst & amp; Young, said successful tax reform requires taxpayers to look at the benefits of any new tax system, not just the costs.
"Tax reform is all about trade-offs. It's all about winners and losers," he said. "I think tax reform is absolutely going to happen. The question is just when."