Tuesday, January 11, 2005

Last week, President Bush finally named the members of a tax reform commission he promised to appoint four months ago. But he has given the panel almost no time to do its work and expects a final report no later than July 31. It’s hard to see what it can hope to accomplish in so short a time.

In his Sept. 2 statement, Mr. Bush said he wanted the commission to report “as early as possible in 2005.” Yet only one member, economist James Poterba of the Massachusetts Institute of Technology, is really known as an expert on tax reform, which means commission members will need considerable time just getting up to speed on the issues before they can even start serious deliberation.

Apparently, the White House went out of its way to find “experts” who have never supported any of the many tax reform plans — flat tax, national retail sales tax, etc. — that have been around for years. At least, they haven’t done so publicly. It makes one wonder how expert they can be when they seemingly haven’t thought enough about tax reform to have yet formulated an opinion. If it is because they just couldn’t make up their minds, the commission’s deliberations could be very long indeed.

I don’t mean to disparage the tax commission — officially, the President’s Advisory Panel on Federal Tax Reform. I have seen and worked with many such commissions and I know that they can be very time-consuming and sometimes unpleasant. Two members live in California and others live in New York, Massachusetts and elsewhere — and have day jobs as well.

Therefore, it will take some effort just to get all commission members in the same room together. Yet, according to the executive order, it is expected to hold public hearings throughout the country including, but not limited to, representatives of “large and small for-profit and nonprofit organizations, state, local and tribal governments, and from other individuals and entities as appropriate.”

Having been chief of staff of a congressional committee, I know from experience field hearings are expensive and difficult to organize, but seldom yield any useful insights. On an issue like tax reform, virtually every important expert is already in Washington. The idea some farmer or businessman or housewife from the hinterlands will have some idea previously unknown to those who study taxes for a living is a pipe-dream.

It is hard for me to see how the tax commission is to gear up, arrange meetings, hold hearings and write a half-competent report in the time it has been given. In my opinion, a year is the absolute minimum that should have been allocated.

Another problem is that Mr. Bush has severely limited the options commission members may consider. First, he has effectively barred it from even proposing ending the deductions for mortgage interest and charitable contributions. Second, the tax code must remain “appropriately progressive.” Third, the recommendations must be “revenue neutral,” which means they will include tax increases. And fourth, “At least one option submitted by the Advisory Panel should use the federal income tax as the base for its recommended reforms.”

This suggests several things. It means a pure flat tax is off the table. It is unrealistic to have one while retaining both the mortgage interest and charitable contributions deductions. That would make the rate too high and also create inexorable pressure to keep other popular deductions once an exception has been made for charity and housing.

Further, the demand that “at least one option” retain the income tax means the commission can’t put its full weight behind a consumption-based tax system, which most economists now support. Moreover, unless the commission makes retaining the income tax its primary recommendation, it will necessarily have to have at least two options in its report. This almost guarantees the report is unlikely to focus national attention as it would if it unanimously supported one option.

Finally, the commission will not have its own staff but must rely on Treasury Department support, although the president will appoint an executive director. The reality is the department’s career staff will end up writing most of the actual report, especially since there is now no assistant secretary or deputy assistant secretary for tax policy at Treasury.

Back in 1984, it took Treasury’s huge staff almost a year to write a tax reform study, and they didn’t have to waste time holding hearings or obtaining bipartisan support among outside experts with competing demands on their time.

If the tax commission is able to meet its deadline and come up with something worthwhile, it will be a remarkable accomplishment.

Bruce Bartlett is senior fellow with the National Center for Policy Analysis and a nationally syndicated columnist.

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