Tax Reform- A Hot Topic in the Coming Weeks

By November 1, 2005, after several postponements, President Bush’s Advisory Panel on Federal Tax Reform is scheduled to release its recommendations. The panel’s mission is to study ways to reform the US Tax Code to make it simpler.

When President Bush set up the nine member panel, he ordered it to be “revenue neutral” meaning that the changes cannot either cut taxes or increase taxes. The purpose of the panel is to study ways to simplify the tax system and therefore make it less burdensome in terms of tax filing complexity. This report is to be submitted to the Secretary of the Treasury.

At this point, its difficult to know exactly what the panel will propose, but some comments by Chairman Connie Mack, a former Republican Senator from Florida, gives some hints as to the direction the panel is moving towards reforming the US Tax Code.

At one point, panel members were considering scrapping the current US tax system and replacing it with another kind of tax, like a national sales tax or a value added tax. But, comments by Mr. Mack, indicate that such a radical overhall is out of the picture. Now the focus seems to be on tweaking the current system.

Mr. Mack has said that there is a consensus to recommend total repeal of the Alternative Minimum Tax(AMT). But, to pay for the lost income that the AMT provided, the panel is considering limiting the mortgage interest tax deduction and the deduction by employers of health insurance benefits.

Any move to limit the mortgage interest deduction, in my opinion, is really going to spark a viscious fight in Congress. I think the real estate special interest groups will come out in droves to defeat this limitation.

And, because of the special interest groups that will come out to defeat any limitations of their favorite tax breaks, I really think that any meaningful tax reform will be very difficult to achieve.