New Tax Structure

[SunDancer]

http://money.cnn.com/2005/03/03/news/economy/greenspan_tax.reut/index.htm?cnn=yes

Greenspan backs tax revamp

Fed Chief supports simplifying the tax code, suggests broadening the revenue base, lowering rates.
March 3, 2005: 10:14 AM EST

WASHINGTON (Reuters) - Any overhaul of the U.S. tax code should aim to broaden the revenue base and lower tax rates, changes that would boost the economy's growth potential, Federal Reserve Chairman Alan Greenspan said Thursday.

In remarks prepared for a panel appointed by President Bush to mull tax changes, Greenspan backed the goal of simplifying the tax code and said previous overhauls, including the most recent revamp in 1986, could provide guidance on how to proceed.

"Since the exemplary 1986 reform, the tax code has drifted back to be overly complicated and burdened by higher marginal rates and by many special provisions that have undesirably narrowed the tax base," the Fed chief said.

"A defining feature of the 1986 reform was the broadening of the tax base and the lowering of tax rates, and it is widely believed that these changes enhanced economic efficiency," he added.

Bush has instructed the panel to offer recommendations to the Treasury Department by July 31 on ways to simplify the code and make it more conducive to economic growth. The Treasury Department will then distill the proposals before forwarding its ideas to Bush by the end of the year.

Greenspan backed the main aim of the effort, saying a simpler tax code could help the economy.

"A simpler tax code would reduce the considerable resources devoted to complying with current tax laws, and the freed-up resources could be used for more productive purposes," he said. "Thus, greater simplicity would, in and of itself, engender a better use of resources."

Greenspan said a move away from the current income tax to a tax on consumption could be the best way to promote economic growth. He said, however, a wholesale shift would raise "a challenging set of transition issues" and noted such a move was considered, and discarded, in 1986.

The White House Council of Economic Advisers said last month incremental changes to the current system would be a better approach than more drastic changes, such as switching to a national sales tax or "flat" income tax rate.

Many analysts say the Bush administration has effectively moved to a more consumption-based system over recent years by lowering marginal tax rates, cutting taxes on capital gains and dividends, and pushing for greater saving incentives.

Greenspan said a tax overhaul could help lay a firmer foundation for the retirement of the baby boom generation by increasing national saving and enhancing work incentives.

"The tax system has the potential to contribute importantly to those goals, and, at a minimum, tax reform should not hinder the achievement of those objectives," he said.

More on taxes? Click here.

Interesting. Thoughts.

[albionmoonlight]

Just to throw something out before the people who know a lot more than I do start posting:

"Simple" does not mean "Flat" and vice versa. The complexity of the tax code has almost nothing to do with its progressive structure. You can have a flat tax that is more complicated than the system that we have now, or you can have a progressive tax that is simpler than that which we have now.

The flat-tax people have done a good job of making flat and simple seem like the same thing. They are not. You can be for a simpler code, but still want it to be progressive--like me.

[SunDancer]

Would a combination of a national tax of the income tax, would it lower the tax rates of the later? Also, would it generate the same amount or more revenue in taxes?

[kcchief19]

The flat-tax people have done a good job of making flat and simple seem like the same thing. They are not. You can be for a simpler code, but still want it to be progressive--like me. Tremendous point. A flat tax would not be simple if the tax structure continued to utilize the same complicated systems of tax credits and adjustments. A flat tax could be simple, but not necessarily.

I'm largely torn on tax simplification issues. A flat tax could be a good idea, implemented correctly. I'm strongly opposed to a national sales tax. I'd like to hear the proposals for a consumption tax, but that too I fear would be too regressive and complex.

There are two major problems -- maybe more -- with radical tax reform proposals. First, too much policy and economic incentives are tied up in tax policy. What would happen to homeownership rates, for example, if the interest deduction for mortgages was removed as part of a simplification plan? Secondly, we have a major industry built around taxes. If a significant simplification plan were adopted, it would threaten hundreds of thousands of jobs with the IRS, tax preparation firms and accountants.

Plus, given the special interest involved, the cynic in me believes that for all the talk about a radical change in tax collection or simplification, what Greenspan says is exactly what will happen. Rates will go down and the base will be broadened. The '86 reform was very minor compared to prospects of a national consumption tax or a flat tax.

[Buzzbee]

Here is a link to a thread where this was discussed in a fair amount of detail. Perhaps more than you'd like.

http://dynamic2.gamespy.com/~fof/forums/showthread.php?t=28674