Bush panel proposes broad tax-law changes

updated 2:18 p.m. ET Nov. 1, 2005

WASHINGTON - Chosen to find a simpler way to tax the nation, a presidential panel on Tuesday recommended two designs that would rewrite virtually every tax law for individuals and businesses.

Treasury Secretary John Snow called the propoposals “bold recommendations” but he did not indicate what ideas the administration would embrace.

“Their advice is the starting point, and I look forward to reading their recommendations and considering them carefully before I make a recommendation to the president,” Snow said in a statement.

Under the panel’s plan, most deductions, credits and other tax breaks would be eliminated along with much of the paperwork and equations that baffle taxpayers under a drastically simplified income tax.

Many, including the nine members of the presidential commission, have said key recommendations will be unpopular.

“The effort to reform the tax code is noble in its purpose, but it requires political willpower,” the group said Tuesday in a letter to Treasury Secretary John Snow. “Many stand waiting to defend their breaks, deductions and loopholes, and to defeat our efforts.”

Snow told the Detroit Economic Club on Monday the nation’s taxes need “not only theoretical reform, not only academic reform, but actual practical reform.”

The President’s Advisory Panel on Federal Tax Reform spent most of the year studying tax designs, including consumption taxes like a national retail sales tax. President Bush tasked the group with finding simpler and more economically productive ideas for taxation.

The commission wrapped up its work last month, and its ideas immediately attracted criticism — some from those who wanted to see more change and some from those who felt the changes went too far.

Drawing particular criticism, the panel determined that tax breaks for homeownership be changed to spread their benefits to more middle-income families.

The panel would convert the home mortgage interest deduction into a credit equal to 15 percent of mortgage interest paid. The $1 million limit on mortgages eligible for the tax break would shrink to the average regional price of housing, ranging from $227,000 to $412,000.

Senate Finance Committee Chairman Charles Grassley, R-Iowa, said that idea is bound to be politically unpopular. “But its important to have a comprehensive starting point that will get everyone talking and thinking,” he said.

In another major change, taxpayers could purchase health insurance using untaxed money up to the amount of the average premium, about $5,000 for an individual and $11,500 for a family, a change that caps currently unlimited breaks but would create a new tax break for those who do not get health insurance through work.

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