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Bush Switching Priority From
Social Security to Taxes
New York State Society of
CPA
October 5, 2005
The Bush administration is beginning to segue from its failed effort to overhaul Social Security to rewriting the tax code, an issue that is fraught with its own political challenges.
President George W. Bush said yesterday there is a ``diminished appetite'' for changing the way Social Security is funded, the first time he's conceded congressional action is unlikely this year. His comments came four days after the White House directed its tax advisory panel, headed by former Senators Connie Mack and John Breaux, to recommend ways to revamp the tax code by Nov. 1, ending an indefinite delay in its work.
Changing the subject to overhauling the tax code gives the White House an opportunity to regain traction on its domestic agenda, analysts said. Bush created the panel in January and ordered it to propose ways to simplify the tax code in a way that makes it fairer and promotes economic growth without adding to the budget deficit.
The Bush administration is using the tax overhaul as its fall- back top legislative priority, said Dan Mitchell, an analyst at the Heritage Foundation public policy research group in Washington.
``If they've pretty much given up on Social Security then what other choice do they have?'' said Mitchell. ``At least they'll have a report for this panel. Whether or not it's politically feasible remains to be seen, but at least it will use up some of the oxygen in the room and crowd out bad ideas.''
It won't be easy. Hurricane Katrina threatens to expand the deficit, which may make it a ``big challenge'' for Bush to push through changes to the tax code, Mitchell said.
Deficit:
Before the hurricanes, the Congressional Budget Office estimated the deficit this year would be $331 billion. That number will rise if Congress doesn't cut spending or raise taxes to offset recovery costs, according to CBO. Congress has already approved more than $71 billion in aid for hurricane victims in the Gulf Coast.
The White House hasn't officially given up on Social Security and Bush said yesterday at a news conference that he would continue to ``remind people that there is a long-term issue that we must solve.''
Still, even some Bush loyalists say a Social Security overhaul won't get through Congress this year.
"Social Security reform can't pass through the present Senate,'' said Grover Norquist, president of Americans for Tax Reform in Washington. ``But there's no shame in saying that,'' he said. ``The president had to try.''
There are a ``whole series'' of tax cuts that can pass through the Senate,'' Norquist said.
60-City Tour:
Bush made Social Security the top domestic priority of his second term, deploying many of his administration officials to promote it and devoting a 60-day, 60-city tour to advance the plan. Instead, the overhaul proposal lost popularity.
A Gallup poll found the percentage of those who said they approved of the president's handling of Social Security fell from 41 percent before the promotional tour to 33 percent when the tour ended. In addition, almost all congressional Democrats and some Republicans, such as Representative Jim Gerlach of Pennsylvania and Senator Olympia Snowe of Maine, remained in opposition.
The tax panel's findings originally were due on July 31, before Bush moved the deadline to Sept. 30 to avoid having the debate obscured by judicial nominations and attention on Social Security. The deadline was later extended again, and Bush on Sept. 30 set the panel's new Nov. 1 deadline.
So far, panel chairman Mack, a former Republican senator from Florida, has said only that it has a consensus to repeal the individual alternative minimum tax, a levy originally intended for the wealthiest Americans that is increasingly affecting middle- income families.
Mortgage Interest:
The tax panel will hold its penultimate meeting on Oct. 11, where it may discuss issues ranging from changes to the home mortgage interest deduction to the merits of tax preferences for employer-provided health care, spokeswoman Tara Bradshaw said.
The tax panel has heard a wide range of politically popular options for changes, from repealing the estate tax and expanding tax-exempt savings accounts to increasing tax breaks for parents.
Repealing the alternative minimum tax, which is projected to affect 40 million Americans with incomes as low as $50,000 by 2010, would cost between $600 billion and $1.2 trillion over 10 years.
Such proposals would increase the deficit or require difficult offsetting measures such as limiting the mortgage interest deduction or imposing new taxes on corporations.
A national sales tax or a European-style value added tax may also be considered by the panel.
Partisan:
The political environment is more partisan than the last time Congress attempted to rewrite the tax code in 1985-1986. Then the idea was initiated by two Democrats -- former Senator Bill Bradley of New Jersey and Representative Richard Gephardt of Missouri -- before it was embraced by then-President Ronald Reagan, a Republican.
Representative Dan Rostenkowski, an Illinois Democrat, steered the legislation through the House Ways and Means Committee and Oregon Senator Bob Packwood, the Republican chairman of the Finance Committee, championed the measure in the Senate.
Now, analysts said, there's more distance between Democratic and Republican goals when each party says it supports ``tax reform.''
"There's an appetite for tax reform,'' said Bill Archer, the former chairman of the House Ways and Means Committee who is now a senior policy adviser at PricewaterhouseCoopers LLP in Washington. ``Until you see what it is.''
Final Recommendations:
The panel will hone its final recommendations at its last meeting in Washington on Oct. 18. Among other issues, it will decide whether to zero out taxes on investment income, keep a federal deduction for state and local taxes and change depreciation rules for corporations.
The Treasury Department will use the panel's recommendations to shape the Bush administration's formal proposal to Congress, Archer said.
Democrats including Steny Hoyer of Maryland, the party's No. 2 ranking member in the House, and Representative Rahm Emanuel of Illinois, a former aide to President Bill Clinton, are among those in their party who say they're eager to debate overhauling the tax code.
They have proposed a plan that makes it easier for lower- income Americans to claim a child tax credit and ends tax breaks on the international income of U.S. companies.
Mitchell, the Heritage Foundation analyst, said Bush may have to be bolder to appease his conservative base, members of whom have been disappointed by record levels of government spending during his administration.
"`The challenge for the White House is that a lot of the base has this `fool me once shame on you, fool me twice shame on me' attitude,'' Mitchell said. ``If the president talks about tax reform but there's no follow-through it could end up backfiring.''
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