(Alexandria, VA) -- While some recommendations from the final report of the President's Advisory Panel on Federal Tax Reform meet its mission statement of being "simple, fair, and pro-growth," on balance the findings may disappoint grassroots activists who have been building momentum for a new and better tax system over the last decade. That's the assessment of the 350,000-member National Taxpayers Union (NTU), which today offered an analysis of the Panel's blueprint.
On March 18, NTU submitted comments to the President's Panel, recommending short-term steps such as a permanent ban on Internet access taxes as well as predatory taxes on e-commerce. Over the long term, however, NTU called for complete replacement of the current tax system, preferably with a retail-level national sales tax (such as the "FairTax" legislation, H.R. 25 and S. 25). Based on this past testimony, NTU provided a "hit and miss" scorecard of the report:
HIT -- Alternative Minimum Tax (AMT) Repeal. The Panel has given new encouragement in Congress to lawmakers seeking to end rather than mend the AMT.
MISS -- Multiple Tax Brackets Retained. Even the Panel's options of streamlining the number of individual brackets from 6 to 4 or from 6 to 3 were less ambitious than the 1986 Tax Reform Act, which reduced the system from 14 brackets to 2. Even so, the 1986 structure survived for barely 4 years before Congress and the President tinkered with it.
HIT -- Territorial Taxation for Businesses. Ditching the arcane method of taxing worldwide profits of U.S. firms, while reducing the corporate tax rate, should enhance American competitiveness.
MISS -- Deduction Restrictions Add Complexity. Limiting or phasing out tax deductions for mortgage interest or state and local taxes won't be worth the political and economic trade-offs unless accompanied by much lower tax rates, preferably a single rate (like the investment gains rate under Panel option 2).
HIT -- No "Return Free" System. Touted as a way to reduce paperwork by letting the government prepare and send tax returns to individuals, such a scheme would have done nothing to catch tax evaders while intimidating many into paying a higher bill than they should.
MISS -- No Action on Excise, Gift, or Death Taxes. The tax burdens on air travel, communications, and other goods and services often exceed middle-class marginal income tax rates, while continuing uncertainty over making death tax repeal permanent creates unnecessary costs for small businesses.
HIT -- Less Punishment for Investments. Under either of the Panel's main blueprints, dividend and capital gains income, along with retirement savings, would not be as harshly taxed.
MISS -- Obsession with "Revenue Neutrality." A properly-designed pro-growth system such as a flat tax or retail sales tax would deliver dynamic economic benefits the Panel didn't adequately consider.
"Americans who hope the Tax Reform Panel's report will light a fire under policymakers may only see a few smoldering embers by the time the Washington establishment gets through with it," NTU President John Berthoud concluded. "The two separate overhaul plans put forth by the Panel might have been radical if this were 1985 instead of 2005, but they are less so when compared to comprehensive flat tax and national retail sales tax legislation now before Congress. Treasury Secretary Snow should bear this historical context in mind and strongly recommend these options to the President as well."
NTU was founded in 1969 to work for lower taxes and smaller government. Note: NTU's testimony to the Panel, along with numerous studies on Tax Code reform, is available at www.ntu.org.