KnoxNews: Will Bush tax reform "throw the country economy into chaos?"

[Bush_Eats_Beef]

Simplifying tax laws not so simple

By JIM SHELBY, The Trust Co., Knoxville
August 14, 2005

http://www.knoxnews.com/kns/personal_finance/article/0,1406,KNS_327_3998576,00.html

Some months ago, President Bush appointed a panel to find ways to make our tax laws more simple and fair. There are nine members on this panel and it has been having numerous hearings. It is supposed to file a report by the end of September on how we should raise, in a fair and simple manner, the $2 trillion needed to run our government. While this is going on, Congress continues to make our tax laws more complicated, with more and more social objectives. It whipped off a couple of new tax bills before it went on "vacation:" the Energy and Transportation acts of 2005. Nevertheless, regardless of the Bush reform panel, many of these new provisions are tied to future actions, so how do you change our tax system without totally upsetting taxpayers and the economy?

Coming back to the Bush panel, what can it accomplish? Can it simplify our tax laws? For example, there are over 10 ways to do retirement savings, each fraught with complications. There are so many education breaks people don't use them because they can't identify them. Health-care incentives are about to catch up in the number of alternatives.

An approach being considered is copied from Europe: a value-added tax (VAT). Each step in the production of a product gets a tax added. While income tax goes down, the price of goods goes way up. Concerns are that consumers would curtail purchases due to the high prices. Also, I recently read in a business publication that cheating on the VAT is rampant in Europe, so the IRS would have to have thousands of new agents to enforce the tax.

Another option being considered is to tax spending rather than savings. Interest and dividend income would not be taxed and interest expense would not be deductible. The effect on businesses would be substantial. IRAs and 401(k) plans would probably go away because if earnings aren't taxed, why do you need to save in a plan? Individuals would have to give up their mortgage interest deduction, and that would create a lot of unhappy voters. One of the biggest problems in any change is the transition. With all of the continuing provisions in the tax code, I have serious doubts that Congress can do changes that will not throw the country and the economy into chaos.

[Clark2008]

1. My hometown newspaper.

And, we're in a big Republican area - well, the county is. The city's pale blue.

[acmejack]

2. What "social objectives"?

"While this is going on, Congress continues to make our tax laws more complicated, with more and more social objectives."

Impoverishing the middle class could be one, I suppose.