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Few people -- Republican, Democrat or non-partisan -- would argue that the tax code should not be revamped. It's 50,000 pages long but short on logic and fairness, and it isn't paying the bills. In January, President Bush appointed a commission, chaired by Connie Mack, the former Florida senator, to look into the mess and propose reform.
The commission's work is almost done. But don't look for reform either fair or useful. Rather, the commission's proposals are veering toward giving the president cover for another round of sweeping, irresponsible tax cuts that continue the shift away from a progressive tax system while digging deeper deficits.
The commission started its work with a crippling premise. Whatever its final proposal, it would have to be revenue-neutral. The commission could not propose eliminating any given tax without proposing an alternative that would bring in exactly the same amount of tax dollars, just as it could not propose creating a new tax without eliminating another. So right from the start, the commission was blinded, at least in one eye, to the biggest reality of the last four years -- that not only is the tax code failing to meet the federal government's responsibilities as structured, but that any restructuring cannot be both revenue-neutral and feasible.
That didn't stop the commission from making its most sweeping and least revenue neutral proposal of all: abolish the alternative minimum tax, or AMT -- at a cost of $1.2 trillion in lost revenue over 10 years.
The AMT could use a commission of its own. It was created in 1970 as the tax code's parallel universe. Some very rich taxpayers were using so many exemptions and loopholes that they managed to pay no taxes. The AMT forced them to fill a separate tax return that overrode those exemptions and loopholes and made sure that they paid up.
Unfortunately, lawmakers forgot about inflation. Someone making $200,000 in 1970 was rich. Someone making $200,000 in 2005 is merely upper-middle class. But the AMT is increasingly devouring tax returns in lower tax brackets year after year. Since 2001, and in the upper tax brackets, it has served as the antidote to the Bush tax cuts that have mostly favored the rich. It's doing what it ought to be doing, only it's reaching beyond the necessary brackets. It needs adjusting, not abolishing.
To make up for the $1.2 trillion loss in revenue, the tax panel is making other proposals that would hurt mostly middle-class taxpayers. The panel wants both the mortgage interest deduction and tax breaks related to health insurance scaled back. Tampering with the mortgage deduction is probably a non-starter: It is the sacred subsidy of homeownership. But cutting back on health insurance subsidies would be right in line with the relentless and mostly successful push by the federal government to privatize most aspects of health insurance -- to the benefit of the insurance industry and at the expense of affordable care.
The panel wants to impose a ceiling on tax-free insurance premium payments because -- claims Timothy Muris, one member of the panel -- limitless, tax-free premiums encourage employers to offer overly lavish benefit packages to employees. What planet has Muris been living on? His proposal is outlandish. That may be just why it'll appeal to those pretending to be reforming the tax code.
Where are the proposals that would reverse the rank income inequalities the tax code has fostered through marginal tax rates that pamper the rich since 1980, that would lighten the burden of payroll taxes on the poor, that would end the festival of loopholes that corporations have taken advantage of to push their tax burden to historic lows? Not from any commission appointed by this presidential administration.
Commendably, the tax commission ruled out two possibilities -- a national sales tax, which President Bush first talked about in the Panhandle slightly more than a year ago, and a value-added tax -- as replacements for the income tax. Both ideas would have ended progressive taxation as we barely know it now. A flat tax is still on the table, but not as a serious one, when the panel meets one last time before submitting its final recommendations to the president in November. On the whole, however, the commission's work so far is boldly uninspiring. Some may call its work reform-minded, but only in so far as Halloween costumes are reality-minded.