Conservatives pan ideas of Bush tax-reform panel

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Conservative tax cutters yesterday angrily denounced proposals by President Bush's tax-reform commission as ineffective tinkering that would heavily benefit high-income people in Democratic states and raise taxes on the middle class in Republican states.

Major tax-reform advocacy groups, from the National Taxpayers Union to the Free Enterprise Fund, and some lawmakers urged Mr. Bush to scrap the panel's plan and offer a comprehensive overhaul of his own to replace the tax code with a simpler flat-tax system that would encourage savings and investment.

"If George Bush thinks he has problems with [Supreme Court nominee] Harriet Miers, wait until it dawns on people that his tax-reform panel is recommending a huge tax cut for rich people in blue states and a huge tax increase for middle-class folks in the red states," said Larry Hunter, chief economist for the Free Enterprise Fund.

When Mr. Bush created the bipartisan commission in January, headed by former Sens. Connie Mack, Florida Republican, and John B. Breaux, Louisiana Democrat, he asked it to produce a simpler, less costly tax system that would boost economic growth.

The panel, whose final suggestions will be made Nov. 1, revealed this week that it might recommend cutting back on popular tax deductions for home mortgage interest and tax-free employer-provided health insurance.

It would use these tax increases to help offset the cost of repealing the alternative minimum tax (AMT), which was enacted to ensure that higher-income people cannot avoid paying taxes, but increasingly has been hitting middle-class taxpayers, concentrated in Democratic-heavy, coastal blue states, as incomes have risen.

Sen. Jim DeMint, South Carolina Republican, called the proposals "a few Band-Aids on the current code. True tax reform requires the complete replacement of the IRS code with a new system that is simple, fair, and that promotes savings and investment."

Mr. Hunter said in a memo on the panel's preliminary plan that even these "two sizable tax hikes together still won't pay the tab for AMT repeal, so the panel also is floating the idea of limiting the deductibility of state and local taxes, another major middle-class tax hike."

"Regardless of the details, the approach the panel is taking requires finding $1.2 trillion in tax hikes, which will hit the middle class and the economy hard," he said.

John Berthoud, president of the National Taxpayers Union, praised the commission's proposed repeal of the minimum tax, but said it dodged its central mission by failing to come up with a simpler system that would replace the current code with either a national retail sales tax or a flat-rate income tax.

"How will raising taxes on home mortgages and health care grow the economy?" asked Rep. Tom Tancredo, Colorado Republican. "If the president's panel gets its way, a majority of homeowners in Colorado would see their taxes go up. This tax increase would be aimed straight at the middle class."