Simplified Tax Code: A Tough Sell

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President Bush's Advisory Panel on Federal Tax Reform is scheduled to present its recommendations to Treasury Secretary John Snow Tuesday. Business tax experts will quickly scour the report to see if the tax suggestions gore their ox - that is, hurt or help their financial interests.

Liberal tax experts will look to judge whether the proposals alter the tax burden distribution among the wealthy, middle-class, and poor.

Income disparities in the United States grew substantially from 2002 to 2003, new Internal Revenue Service statistics indicate. After adjusting for inflation, the after-tax income of the richest 1 percent of households rose by 8.5 percent, or nearly $49,000 apiece - helped by the Bush tax cuts. The bottom 75 percent of filers saw real after-tax incomes fall. The middle fifth of taxpayers, for instance, lost $300.

The nine-person panel outlined its tax suggestions last Tuesday. It emphasized the distributional neutrality of its ideas.

"I don't believe them," says Robert McIntyre, director of Citizens for Tax Justice, after noting some proposed changes.

No one expects Congress or the president to accept the panel's recommendations carte blanche. More likely, the president will wrap some of its proposals, such as streamlining tax breaks for savings, into his 2006 State of the Union address.

Then the tax committees of the Republican-led Congress will have a go at reform. What will emerge, if anything, is anybody's guess. But chances of major reform are "pretty slim," says Tom Ochsenschlager, tax vice president at the American Institute of Certified Public Accountants in Washington.

No one doubts a need for reform. As the panel put it earlier this year: "For millions of Americans, the annual rite of filing taxes has become a headache of burdensome record- keeping; lengthy instructions; and complicated schedules, worksheets, and forms - often requiring multiple computations that are neither logical nor intuitive."

Since the last major tax reform in 1986, Congress has added more than 14,000 changes to the tax code to please its constituents.

If implemented by Washington, the panel's proposals would achieve to a degree one goal: tax simplification. For instance, the panel suggests eliminating tax deductions for state and local taxes (which will save individual taxpayers $50 billion this year) and other measures that would shrink the Form 1040 tax return from 75 lines to 32.

The final result could be an Alternative Minimum Tax "in disguise," warns Milton Ezrati, an economist at Lord, Abbett & Co. …