- The Washington Times - Wednesday, November 2, 2005

Bankers, securities industries applaud; life insurers see a downside

The recommendations of President Bush’s tax advisory panel pit some of Washington’s most powerful interest groups against one another, exacerbating an already tense political environment on Capitol Hill.

The American Bankers Association and Securities Industry Association applauded proposals to expand tax-free savings, while the American Council of Life Insurers said it fears losing tax advantages for policies.

The National Federation of Independent Businesses said the proposals would help small companies, while the National Retail Association warned the proposal would increase consumer prices.

The National Association of Realtors said plans to limit homeowner tax breaks would hurt home values, while the National Low Income Housing Coalition said they would help the working poor.

These and other interest groups will be heard by the Treasury Department as the agency shapes the recommendations the nine-member panel presented Tuesday into a formal proposal for Mr. Bush to advance next year. White House officials say tax overhaul will be a top domestic priority next year. To succeed, the president will need cooperation from congressional Democrats.

“The key is going to be bipartisan buy-in from members of Congress and from the business community,” said Mark Weinberger, vice chairman of Ernst & Young LLP who was Mr. Bush’s first assistant Treasury secretary for tax policy from 2001 to 2003.

That support may be hard to get. Unlike the broad bipartisan support President Reagan got in 1986, the last time the tax laws were rewritten, Democrats such as Oregon Sen. Ron Wyden and House Minority Whip Steny H. Hoyer of Maryland are heaping criticism on the panel’s work.

Mr. Wyden, a member of the Senate Finance Committee who has his own tax-overhaul plan, said the panel’s recommendations “hurl three strikes at the middle class” and toss “softballs to special interests.” Mr. Hoyer, who has proposed a separate tax-overhaul package with Rep. Rahm Emanuel, Illinois Democrat, said he was “disappointed” because the panel “emphasizes wealth over work.”

The panel’s 272-page report endorsed two alternative ways to overhaul the tax laws, and many of its major ideas have met with a lukewarm reception. In a letter to Treasury Secretary John W. Snow, the panel acknowledged that carrying out its proposals would be difficult.

“The effort to reform the tax code is noble, but it requires political willpower,” the panelists wrote.

Both of the panel’s plans would scrap or curb many popular deductions and tax wages more heavily than investment income. They would repeal the alternative minimum tax and one of its chief triggers, the deduction for state and local taxes.

Mr. Snow didn’t endorse any of the proposals Tuesday, calling them a “starting place for the recommendations we will make to the president.”

At the White House, spokes-man Scott McClellan said he wouldn’t “prejudge” what the president would ultimately propose.

A wide variety of concerns will have to be addressed by the Bush administration before a final proposal crystallizes, Mr. Weinberger and other experts said.

“An awful lot of people will make input with the Treasury before the ultimate recommendation comes forward,” said former Rep. Bill Archer, a Texas Republican who was chairman of the tax-writing House Ways and Means Committee from 1995 to 2000.

The biggest flash points for special interests are proposed changes to mortgage interest breaks. These have pitted Realtors and mortgage bankers against advocates of low-income housing.

The proposals would restructure housing tax incentives now concentrated among higher-income people. No tax benefit would be permitted for interest on a mortgage of more than $412,000; the cap would be as low as $227,000 in some areas with cheaper housing. The law now allows a deduction for interest paid on mortgages up to $1 million.

Al Mansell, president of the Washington-based National Association of Realtors, which represents 1 million real estate agents and whose political action committee gave more money to lawmakers in 2004 than any other group, said reducing tax incentives for homeownership would cost the typical homeowner up to $30,000 in housing equity.

The California Association of Mortgage Brokers said the proposal would devastate its state, where the median home price is $568,890.

Sheila Crowley, president of the National Low Income Housing Coalition, a Washington-based nonprofit group that advocates for federal aid to build affordable housing, said the proposals would benefit lower-income homeowners by replacing the mortgage deduction with a 15 percent credit.

Another battle pits bankers and securities firms against the life insurance industry because the panel recommends taxing the growth in cash value of a life insurance policy while reducing or abolishing taxes on other investments, such as dividends, capital gains, and interest.

Greg Jenner, executive vice president of the American Council of Life Insurers who was acting assistant secretary for tax policy in 2004, said the panel displayed “weak thinking” to equate life insurance with other forms of savings.

“There are just so many flaws in the proposal,” he said, predicting it would “fall on its own weight.”

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