Boortz: Dissolve Presidential Tax Panel
In a new article “Dissolve the President’s tax reform panel,” Boortz joins others in calling for the dissolution of the President’s panel:
When President Bush formed his President’s Advisory Panel on Federal Tax Reform he charged that panel with developing a tax reform proposal that would achieve three principal objectives:
1. The proposal should simplify the Federal tax code so as to reduce the costs of tax compliance.
2. The proposal should promote home ownership and charitable giving.
3. The proposal should promote economic growth, job creation and encourage individual saving and investment while strengthening the competitiveness of the US in the global economy.
We now have a clear indication of the proposals that will come from the president’s tax reform panel, and it’s fair to say that not one of the above objectives will be realized, much less addressed. The tax reform panel, having failed to follow its mandate, should be dissolved immediately and the panel members sent off to create mischief elsewhere.
Former Louisiana Senator John Breaux, who serves with Florida Republican Connie Mack as co-chairs of the panel, announced this week that the panel is not going to seek a wholesale reform of our tax code. No surprise there. Why would politicians want to abandon a tax code that has served them, if not the people, so well for generations? The ability to manipulate tax laws so as to buy votes and reward large campaign contributors is not something we should not expect politicians to abandon without a fight.
If you’re not sitting down, maybe it would be a good idea to pull up a chair. You are about to learn what this esteemed panel is going to propose to meet the three primary charges contained in the Executive Order which brought them to this tax reform dance.
First tax reform proposal: A tax increase for the owners of more expensive homes. Right now home owners are allowed to deduct the interest on the principal balance of home loans up to one million dollars. The panel apparently will recommend that this deduction limit be lowered, perhaps to $350,000. This would mean that taxpayers with loans on more expensive homes will be hit with a tax increase. Admittedly, this reform proposal will resonate with a good many Americans who wallow in wealth envy, so we’ll give the panel some credit for carrying the banner of class warfare.
The panel’s second tax reform proposal will be to require businesses to pay taxes on a portion of the cost of any health insurance or health care benefits provided to employees. Right now employer can deduct those costs. The panel wants to put a limit on what can be deducted. Result? A tax increase for businesses.
The panel proposes to spend the tax money gained from these two tax increases to cover the cost of eliminating the hated Alternative Minimum Tax.
There is nothing in these proposals that would reduce the cost of tax compliance in this country; a cost that by some estimates reaches between $300 and $500 billion a year. In fact, these proposals will increase the cost of tax compliance as individuals and businesses scramble to find a way to deal with these costly new tax rules. There is also nothing in these proposals that would in any way encourage home ownership. You simply do not encourage people to buy homes by threatening their cherished home mortgage interest deduction while raising their income taxes.
Finally, there is nothing in these proposals that would promote economic growth or individual savings and investment. You don’t improve America’s competitive position in the global economy by raising taxes.
There is, however, a proposal that would accomplish the objectives set forth by the president without increasing the tax burden on either the American people or American business. The proposal is H. R. 25, the FairTax Act, and it is the subject of a book co-authored by myself and by the author of H.R. 25, Congressman John Linder (R. Ga.).
Are the people of this country ready for wholesale tax reform? The president’s panel thinks not. Sales of The FairTax Book might indicate otherwise. The FairTax Book made its debut No. 1 on the New York Times Bestseller’s List. It is now in its eighth week as a bestseller. Can you remember the last time a book on tax reform showed this type of strength in the book market? No? Well then maybe there’s something to this tax reform proposal that has struck a chord with the American people.
Neal Boortz overlooks the most critical mandate in the Executive Order establishing the President’s Advisory Panel for Tax Reform: “At least one option submitted by the Advisory Panel should use the Federal income tax as the base for its recommended reforms.”
This made the panel moot from the very start. It guaranteed just one more tax “simplification”, where hundreds – or even thousands – of unintelligible pages would be added to the present income tax code. It’ll be a repeat of the same dejavu all over again, just like last time, only different, because it originates from a panel of experts, so no lawmakers can be blamed.
The panel has as much as ruled out a FairTax, and has only suggested tinkering with the levels of deductions – true tax simplification in true politician’s style.
Gregg
I don’t know where to start, there’s just so much that is positve about the FairTax. I can’t comprehend that so-called educated people cannot understand the benefits and the simplicity of the FairTax. The FairTax would (1)give low-income people the ability to add health insurance to their pay checks that they couldn’t afford when income, social security and medicare taxes were being deducted. They also may be able to do a novel idea of saving for their retirement by joining a savings plan through work. (2)bring back businesses back to the US because of no corporate taxes thus bringing the actual cost of products down to reasonable prices. (3)get rid of the fear and expense of the IRS. (4)give me the right to choose how I want to spend my own money. These are just a few of the benefits that I find with the FairTax. But I’m just a stupid waitress with a high school education. I have mentioned FairTax to my coworkers and to others and I am flabbergasted that there is very few that are aware of the FairTax. Even people in finance of the company that I work for didn’t know what I was talking about. The company I work for is a major corporation. I can’t understand why big corporations are not lobbying for the Fairtax, it’s to their benefit. It is very disheartening to hear everyone say that it’s never going to pass because that would mean that the government would have less control of my money. I even have a solution for what to do with the employees of the IRS. Move them over to FEMA, they can use their skills to had out checks to the needy and go after the ones that use the system. They’re good at it. Thanks very much for listening.
I couldn’t understand some parts of this article Dissolve Presidential Tax Panel :: The Fair Tax Blog, but I guess I just need to check some more resources regarding this, because it sounds interesting.
If you get a chance, you should go out and read the transcripts of the meetings (maybe use a text reader program… a lot of it is pretty tiresome) from their web page.
Ultimately my impression of what happened is a bunch of congressmen who were not particularly keen on any type of tax reform went out and listened to a series of tax reform activists, often trying to cherry-pick features from each proposal.
The end result was a mish-mash of incongruous tax reform strategies, propped up on the existing income tax structure. In true congressional-hearing style, it was not the product of research or economic design, but rather the product of tax reform by committee.
This has long been my problem with folks who have responded to the FairTax by stating that the “President’s Tax Reform Panel dismissed the idea” or some such, as if it was borne out by some serious research. It was not. Much of the information in the tax panel’s proposals is simply parroted from their hearings, and includes little or no real analysis. The Tax Reform Panel did not attempt to study these proposals with economic models, nor did they commission their own studies. This is not how congressmen work. Instead, they held hearings over the course of several months, and made a tax reform scrapbook of sorts.
Real criticism of the FairTax with some thought behind it isn’t hard to find. The President’s Tax Panel didn’t even deign to give it enough attention to really criticize it. They posted some generic figures on what a consumption tax could be like at its worst to justify dismissing it entirely, and moved on.
If you want a good indicator of how the Tax Panel saw these things, listen to John Breaux’s comments. In nearly every statement he makes, he wants to mix income and consumption taxation, he wants to simplify paperwork but not eliminate any credits, he wants to have his cake and eat it too in every single testimony he responds to. The whole thing became such a political football by the end that I honestly don’t think anyone wanted their name associated with the panel for fear of their political life if someone passed what they came up with.
Another telling factor is that the tax panel did not provide any actual legislation, only a proposal report. If any of the panel members had been really sold on their ideas, they all would have been in a prime position to put forward bills reflecting the results of the panel’s research, being on the Ways and Means committee.
James, are you aware that out of the nine panel members, only three were former Senators or Congressmen? It’s hard to see how this was “a bunch of congressmen who were not particularly keen on any type of tax reform.” Do you also realize that the President did not task them with creating actual legislation.
[BTW, we already have a mix of income and consumption taxes. Anytime you have a tax-deferred account it is, economically, a consumption tax.]
I stand corrected on the Congressman point.
However, I stand by my other points. Any private group of people can attempt to create legislation and get the Congress to pass it. And I still believe that this panel would have been more influential than most if it had chosen to find Congressional sponsors and push legislation forward. The fact that they did not try makes me think that perhaps they simply weren’t very enthusiastic about their results.
I also stand by my criticisms of their methodology. They have yet to publish their methods or studies with the exception of their final report, and after reading the transcripts of the hearings, I believe much of the report to simply be quoting various bits of testimony from the people invited to testify. This leads me to believe that there may have been very little substantive research performed, if any, beyond the hearings themselves.
I’m no fan of the Tax Reform Panel’s recommendations, but I’ll make some quick points in response to James.
1. One of the members of the Tax Reform Panel was Jim Poterba, chairman of the economics department of MIT who focuses a great deal on tax issues. Dr. Poterba was one of the original economists who was retained by AFFT to study the FairTax, way back in 1997 or so. In fact, for years fairtax.org used to cite to a letter Dr. Poterba had written appearing to endorse the 23% tax rate. (Without going into details, Dr. Poterba didn’t really endorse the rate, but that’s for anohter thread.) So, the Tax Reform Panel did have at least one economist on it, and one of the few in the country that was extremely familiar with the FairTax. Moreoever, as I understand it, Dr. Poterba generally believes that a consumption tax is more efficient than an income tax.
2. They also had Ed Lezear, a fellow of the Hoover Institute (a concervative think-tank) and a professor at Stanford Business School. As well as a professor from USC. They are obviously familiar with research and analysis.
3. The chairman (Connie Mack) was from Florida, so he was obviously familiar with dealing without an state income tax.
So, I think to say that these folks just “went through the motions” and didn’t take their roles (or the FairTax) seriously is just wrong, and extremely insulting to people who devoted months to something that wasn’t given five minutes of real consideration. (Without getting political here, it reminds me of when Bush’s first EPA director issued a detailed report on global warming, and it was immediately dismissed as being the work of “bureatcrats.”)
Finally, I’ll point out Bush is from Texas which does not have a state income tax. When he was governor of Texas, he appointed a similar tax reform commission to reform the state tax system, with the explicit instructions that it could NOT consider instituting a state income tax. Believe me, Bush would have LOVED to have been the President who got rid of the federal income tax if he thought it was possible to do so.
My point in all this is that the FairTax probably got a far closer look by the Tax Panel than is commonly believed.
This wasn’t a private group. It was a panel convened for specific reasons by the President and funded by taxpayer money. Once they fulfilled their mandate and provide the President with the report required, their job was done. It was then up to the President to with it what he wished, including creating and pushing legislation. He chose to do nothing. Several of the members of the panel expressed frustration over this.
And I don’t understand how you can say “They have yet to publish their methods or studies with the exception of their final report.” This panel was convened to produce the final report, once it was delivered to the President, the panel was disbanded. There is no “they” to publish their methods.
Does the fact that we haven’t been allowed to view their studies or calculations not bother anyone other than myself?
I mean if folks are going to go around quoting this report like it is gospel truth, shouldn’t we be able to verify some of their work for ourselves? I don’t much care if ‘they’ were disbanded or not, I am not accusing anyone of conspiracy, only that the FairTax likely was given cursory attention (as were most of the tax reform proposals they heard). This in itself is not surprising or criminal, just frustrating to me.
Now Hayden, your opinion is your own, but is largely supposition and not borne out in my opinion on the testimonies I read. Some panel members seemed genuinely interested in the FairTax, but the panel seemed to have a basic ground rule: no one tax proposal set before them would be ‘picked’ or even evaluated on its own merits. Each would be evaluated in very general terms and then after the pros and cons were weighed, they might cherry-pick an element for their final proposals that they would create. Now how can you get a good result with that method?
Now the President is simply not the only person who could have made a bill and gotten someone to push it (obviously he didn’t exactly get what he was looking for either or he probably would have gotten some legislation moving). Was there anyone in this country running about saying they wanted the Tax Reform Panel’s suggestions written up as legislation at all? A single congressman? The proposals were well known and several of the authors were well-connected. What would be the barrier to there being a bill?
I dunno. It’s kind of a done deal. No harm, no foul, I guess. No legislation was passed and the Panel doesn’t have much in the way of a following, so it seems its only use now is to bash consumption tax geeks over the head with it.
I’m not sure I would completely blame the tax panel for the data. The methodology that we seek is that of the Treasury Department. Who where the IRS economists that put the data together for the National Sales tax and what methodology did they use? I do blame the panel for a deceptive presentation that made it look like they were analyzing the FairTax in regard to tax burden distribution. Sort of changes the picture when replacing only the very progressive income tax. Knowing the FairTax plan replaces several regressive taxes that would change the distribution effects, they still presented it as the FairTax.
IRS economists? What makes you think they were IRS economists?
I don’t know they were IRS economist. IRS is under the Treasuary department (which did the analysis), so you could make an assumption that they might have asked their IRS tax experts / economists to prepare some numbers for the tax panel. Do we know that they didn’t.
They won’t even give us the name of the economists that worked on it… just the Treasuary department. I believe AFFT and Kotlikoff have file with the Freedom of Information Act to get the methodology and such.
James –
Just curious. Other than the Beacon Hill study, do you know of any other pro-FairTax studies where the methodologies and calculations were disclosed? If so, do you have a link? (I’ve kept a file on all the studies I’m aware of, which is why I’m asking.)
Thanks.
Other than Kotlikoff’s studies, and some of the older studies where the links have vanished, no. But I don’t look for ‘pro-Fairtax’ studies very often. I just look at what comes out.
There really aren’t that many folks doing these studies; maybe Kotlikoff, Gale and two or three other halfway interested folks. I honestly think Kotlikoff and Gale just like to argue with each other on this issue.
Well the Panel’s report states the source of their data as the “Department of the Treasury, Office of Tax Analysis.” I think you used the spectre of “IRS economists” (because we all know the IRS is evil incarnate) to further defame the Tax Panel and their work.
Also, where does this stuff about the AFFT and Kotlikoff filing a FOIA request come from?
One more thing, could you point out specifically what you found “deceptive” about the presentation in the Panel’s report. It seems to me they clearly described what they were doing.
Fred,
I agree that the Commission was clear in what they did. However, the problem is that their initial numbers don’t make sense. Check page 209, last paragraph, which is the starting point for the Commission review of a consumption tax similar to the Fairtax. They write that they used the Fairtax base (extended base), took into account a 15% evasion factor (low rate), and stated that the exclusive tax rate to replace just the income tax (no prebate) would be 22%. I’ve spent the last two days trying to recreate that rate and it can’t be done IMHO. So, like James, I’d also like someone to locate the Treasury gnome who did the Commission math because something is just not right. (Note: Using the old 2003 AFFT White Paper “How the Fairtax is Revenue Neutral”, if you adjust the 19.1% exclusive rate (before the prebate) up by 15%, it comes to exactly 22%. But the AFFT paper includes all taxes, not just the income tax. And it’s clear that the Commission was talking about just the income tax???).
However, it really doesn’t matter in the larger scheme of things. I’m as frustrated with the AFFT response as James seems to be about the criticism that the “Commission rejected the Fairtax”. The response that the Commission didn’t evaluate the Fairtax (while technically correct) is very disingenuous. The Commission wasn’t tasked to evaluate specific proposals, so they simply created a generic national sales tax proposal and concluded that there were at least a half dozen problems with a consumption tax that led to their rejection. And these problems apply equally to the Fairtax! Here are some of the problems identified by the Commission:
(1) A sales tax is regressive.
(2) A cash grant to relieve the sales tax impact on lower income families would inappropriately increase the size and scope of the federal government.
(3) Lacking third party reporting, there is significant potential for evasion.
(4) A national sales tax would encroach on a tax base traditionally left to state and local governments.
(5) States would need a new income reporting system.
(6) Taxation of state and local government agencies would be inappropriate under our federal form of government.
I think the Commission did a reasonable job of evaluating a national sales tax in the limited time they had. It occurs to me that many of us on this blog have spent two to three years trying to understand the Fairtax and we still have major disagreements. I’d also like to point out that some of the commission members hold positions of power in the Bush administration–specifically on the Council of Economic Advisors.
The Commission report, as a minimum, provides very good cover for candidates such as Romney and Giuliani who don’t support the Fairtax.
I still need to send my letter to Kotlikoff. I’ll ask him if he ever got anything back from his FOIA request. My understanding is that the responses to those things are generally pretty quick, and this has been over 18 months since the Tax Panel’s report. Of course, this administration has not been particularly forthcoming on these sorts of requests on other matters, so we might never find out.
Fred, I was half jesting.. of course I used it to defame.. we’re on a FairTax blog. Your right about the tax panel report – they did present it correctly. However, 99% of opponents you talk to will say.. The tax panel said the FairTax would change the tax burden.. yada yada yada. Which of course the tax panel did not say that. They said a national sales tax (using the extended tax base) that replaces income taxes would do so and so. They didn’t make it clear enough that this was not the FairTax plan. They included enough to make most people think this was the FairTax (and you could argue it as a base for the tax rate) but we’re talking two entirely different things when looking at tax distribution per what the plan replaces. So I agree they presented it ok but most people misread it… so I think they failed to explain it. They knew it would be used as reference for the FairTax but failed to disclaim the difference sufficiently.
Ok.. putting on my extreme FT hat (usually reserved for the full moon). Thinking the OTA (that mainly deals with the IRS) has some self interest involved is not too far out. The Secretary of the Treasury, Henry M. Paulson, stated in 2006 that he would investigate the FairTax in a very comprehensive way using resources outside the Treasury. So there must have been some doubt as to his staff. Also note that several tax panel members (including the chairman), were quickly hired as tax lobbyists with million dollar salaries – no conflict of interest there.
To Hanks point, If you think about it… they got a 25% rate (inclusive on income taxes alone, which is half the income tax base) so it would be something like 50% to cover all taxes. Exclusively that would be 100%. So if we’re really taxed at almost 100% on all consumption (most of GDP), then we have some very serious tax visibility issues with the current system. This is more then double what Beacon Hill projected and almost double of the opponent William Gale. I mean we’re talking about a 2 trillion dollar difference here – not a minor figure. Kotlikoff has stated that they really screwed it up and it is impossible to get there figures without doing something seriously wrong. He did give them an out saying that this was complex math.
So I get a little bent when talking about the tax panel as you usually get a tax distribution charge that is not based on all the taxes replaced by the FairTax using a tax rate that the leading economists with peer-reviewed research don’t even come close too. Kotlikoff had stated on Phil Hinson’s show that he was planning to file for FOIA after several requests for the data going without results. Taking off the hat and straighting up my tie… [cough] but I of course trust my government statesmen and know they are doing what’s right for the American people without bias or incompetence.