Secondly, Bush's strategy has been developing since Ronald Reagan days. The tactic is one I've wrote about before. Its been been called "starving the beast". The idea is explained below very well.
Magazine > Breaking the Code" href="http://www.nytimes.com/2005/01/16/magazine/16TAXES.html?ei=5090&en=ec21b04f41fc7221&ex=1263618000&partner=rssuserland&pagewanted=all&position=">The New York Times > Magazine > Breaking the Code
John Podesta,.. the last chief of staff to serve under Clinton,.. heads the Center for American Progress.... Podesta has little faith in the conservatives' trickle-down approach. He also says it is bad economic policy -- "fatally flawed," as he put it. "We're already seeing the current account deficit increase by $600 billion a year," he continued. "People are mortgaged to the hilt. The middle class is now being fundamentally squeezed. They've gotten no benefit from the tax reduction. G.D.P. growth is going almost all to corporate profits. And we're creating an overall economic circumstance in which the dollar is certain to drop, interest rates are certain to rise and growth over the long term looks kind of sketchy." To understand why the G.O.P. has pursued such a policy, Podesta argues, you have to look at the political dividends, not the economic ones. "What are the structural elements of what they are trying to do with the tax code?" he began, busying himself at a small coffee machine. "I would say there are three. One is to eliminate taxation on wealth and investment. Second is to create a revenue stream that aims at a government the size of which we haven't seen almost since before the Depression." Already, he points out, the government takes in far less than it spends, forcing the Bush administration to borrow billions of dollars to cover the revenue lost from cutting taxes. "Three is that if you build in taxation only on wage income, you have massive resistance by the middle class to letting those taxes rise. So you've kind of locked in three structural components that end up being highly beneficial to wealthy people, and I think, from a conservative governance point of view, create not just restraint on the growth of government, but essentially pressure to downsize the government." ...Democrats aren't willing to pretend that there can be tax reform without any losers.
Thats right, the Republicans have been plotting to undo FDR's New Deal reforms where government takes an active role in providing a safety net for those who can't take care of their own: Social Security, Medicare, and their cousins, SSI, and Medical Assistance.
You won't find many Democrats who'll defend AFDC anymore. It was a disaster that created a sense of entitlement among the poor for hand-outs and helped create an underclass of single mothers. Ultimately, it fed the roles of the homeless with their grown-up children. Of course I don't pretend that their aren't other factors involved. But the connection between work and a living was underminded by building a sense of entitlement. Government can't protect us from our irresponsible actions. That system has been reformed, mostly for the better. But I would argue that a lot of folks who are truly unable to work don't fit into the current definitions of disabled are falling through the cracks.
The rest of the aforementioned New Deal legislation provide government funded insurance for retirement income and medical care or provide a safety net for those who are disabled or too young to work. If you have any doubts that cutting Social Security and Medicare to the bone is not the agenda of the Republicans, look at the numbers. Social Security, Medicare, and the safety net for the disabled make up by far the largest part of government expenditures. They cannot cut government to pre-FDR levels without taking federal government out of safety net business.
In other words, unless local government picks up the slack, which is very unlikely, there will be poor and homeless elderly and disabled like we have never seen before. Ask the current private charities if they can pick up the slack.
Yes, reform is needed. Government is too big. Anything that big, including multi-national corporations are largely unmanagable. Even de-centralizing doesn't solve that problem. Sufficiently decentralized to be more efficient, the central office no longer can maintain quality control and the local office takes on the size that it can no longer manage.
Allowing younger workers to opt out even partially from Social Security will simply bring down the Social Security system much sooner than 40 years. And because of the volatility of the stock market, some people will have no retirement income. The beneficiaries of a privatized retirement system is Wall Street Brokers and the rich who will get another tax cut. The losers are those who need Social Security, those who bank their future in the Stock Market and retire when its a bear market, the unemployed who will wait a long time for jobs and our children who will have to pay off trillions of dollars of debt.
A better solution is a simpler system that requires fewer bureaucrats to manage. A negative income-based tax just might be the answer.
Just remember folks, while a common sense point of view, a flat tax makes sense, then we all will be living without a safety net. The only tax that will handle a safety net, will have to be progressive enough to capture the different from the rich. Otherwise, homelessness will be more common and life expectancy will drop because so many will be without healthcare.
Is that the kind of country you want to live in?
Complete Article
Breaking the Code
January 16, 2005
By NICHOLAS CONFESSORE
One afternoon late last month, I paid a visit to the
offices of Americans for Tax Reform, the conservative
lobbying outfit headed by Grover Norquist. Though Norquist
ranks among the Republican Party's leading operators,
neither he nor his organization is quite yet a household
name. Outside the Beltway, he is known mainly, if at all,
for the cheerfully visceral quotations that regularly
appear next to his name in newspaper articles. (Shortly
after the G.O.P.'s Election Day victory, Norquist mused to
The Washington Post that the city might become less bitter
and fractious now that the Democrats had been more or less
neutered. ''Certain animals run around and are
unpleasant,'' he noted, ''but when they've been fixed, then
they are happy and sedate.'') Inside the Beltway, however,
Norquist has made his mark as a political organizer. Each
Wednesday morning, more than a hundred leading conservative
activists, policy pundits, talk-show producers and
journalists, joined by assorted Hill staff members and
White House aides, gather in Americans for Tax Reform's
conference room to discuss the issues of the day, from
prescription drugs to school choice. Within Republican
circles, Norquist's job is to organize other organizations,
making sure the different branches of conservatism are
moving in the same direction, at the same time, to the
greatest extent possible. His particular genius is for
persuading one organization to reach beyond its own agenda
to help out another -- for getting, say, the cultural
traditionalists at the Eagle Forum to join the business
libertarians at the Competitive Enterprise Institute in
opposing fuel-economy standards for automobiles by
convincing the traditionalists that, as Norquist once
explained to me, ''it's backdoor family planning. You can't
have nine kids in the little teeny cars. And what are you
going to do when you go on a family vacation?''
Taxes, though, are Norquist's first passion. A.T.R. was
formed 20 years ago, at the Reagan administration's behest,
to rally grass-roots conservative support for an ambitious
bipartisan effort to reform the federal tax code, which
would culminate in the Tax Reform Act of 1986. Norquist,
then a 29-year-old Reagan acolyte and former speechwriter
at the United States Chamber of Commerce, was brought on
board as the group's executive director. He soon discovered
that many conservatives were deeply skeptical of the
legislation, which proposed to slice reams of
special-interest tax credits, breaks and shelters out of
the tax code in exchange for lower marginal rates across
the board. They were attracted to the idea of more tax
cuts, but suspected that they might later be
double-crossed. ''They said, 'We're going to get rid of
these credits and deductions, we're going to broaden the
base and then they're going to come back and raise the
rates again, and we won't even have the deductions and
credits anymore,''' Norquist recalled, sitting behind a
massive desk, with a county-by-county map of the 2004
election results -- a blur of Republican red -- hanging
nearby. ''At which point, I said, 'Well, what if we made it
difficult for them to raise rates?'''
Thus was born the Pledge. This was a promise, first
circulated by Norquist in 1985 and originally signed by
more than 100 members of Congress, never to vote to raise
tax rates. The Pledge helped deliver enough conservative
votes to pass tax reform, but not enough to prevent future
backsliding. Four years later, President George H.W. Bush,
who had famously promised voters that there would be ''no
new taxes'' on his watch, changed his mind. Faced with a
swelling federal deficit, he proposed a budget deal that
raised taxes overall and even added a new bracket for
high-income earners, and he urged Republican members to
support it in the name of paying down the debt.
Bush's betrayal -- a seminal moment in Republican politics,
and one that reverberates still -- is immortalized in an
enormous framed reproduction of an Oct. 2, 1990, Wall
Street Journal editorial, occupying most of one wall near
the entrance to A.T.R.'s office suite. Titled ''Honor Thy
Pledge,'' the editorial listed the names of Republicans who
took Norquist's oath and urged swift retribution on anyone
who ended up voting with the president. More than 30
eventually did, providing the crucial margin for Bush's tax
hikes. But the editorial isn't hanging there to commemorate
failure: 1990 was the last year any G.O.P. politician at
the national level voted for any income-tax increase,
period. ''Had Bush broken his pledge and gotten re-elected,
it would have made the Pledge much less valuable, maybe
completely worthless,'' Norquist told me. ''But because the
most famous pledge-taker-slash-pledge-breaker lost
re-election, on that subject, it's had an effect.''
In the years since Bush's defeat, Norquist's way of
thinking about taxes -- that they should be cut whenever
and wherever possible -- has become the central tenet of
American conservatism. Currently, the Pledge has been
signed by 222 members of the House and 46 Senators, which
includes pretty much every Republican in both chambers. It
has also been signed by Bush's son President George W.
Bush, who has not only kept his pledge but also made
cutting taxes the signal domestic accomplishment of his
first term. Taxes are likely to be at the heart of Bush's
second-term agenda, too: not long after Election Day, Bush
announced that the tax code had become ''complicated and
outdated'' and ''a drag on our economy'' and that it was
time, once again, for tax reform. Earlier this year, Bush
named members to a bipartisan commission to get the ball
rolling. ''All options,'' a Treasury Department official
warned, ''are on the table.'' Boilerplate as they may
sound, those kinds of words can set Washington aflame like
little else. Just as in 1986, the call for tax reform puts
at risk hundreds of special provisions, affecting nearly
every organized interest in town, from insurance companies
to charities, from Wall Street banks to forklift
manufacturers, from the biggest state in the union on down
to little municipalities putting out tax-free bonds.
But the pressures Norquist and his allies have brought to
bear on American politics over the last two decades make it
unlikely that Bush's attempt at tax reform will much
resemble the 1986 version. During the latter half of the
20th century, most Democrats and Republicans accepted -- at
least in theory -- the notion that taxation should be as
broad-based as possible; no one swathe of the public, and
no one sector of the economy, should absorb too much of the
cost of government, both because it was unfair and because
it was inefficient. The 1986 act brought the federal tax
code closer to that vision by cutting loopholes and, as a
consequence, expanding the pool of taxpayers. But
Republicans today have something else in mind. By their
lights, the old consensus is not only outdated, but
egregiously so, even offensively so. Bush's call for reform
gives them a chance to replace it with something else.
And in many respects, the replacement is already well under
way. After four rounds of largely Republican-inspired tax
legislation, today's code is a profoundly different
instrument than the one that existed when Bush first took
office. And though the White House has never publicly laid
out a common rationale for its policies, Bush's changes --
which have cut income taxes on high earners, reduced rates
on capital gains and dividend income, temporarily
eliminated the estate tax and allowed businesses to write
off the cost of new capital purchases more quickly --
depart drastically from the old model of reform. Bush's
cuts have greatly reduced the costs formerly borne by
corporations and the wealthy, leaving the tax code
considerably less progressive than it once was. Instead of
getting rid of loopholes so that fewer businesses escape
paying taxes, conservatives have essentially set out to
universalize those loopholes, aiming for a day when
corporations won't have to pay taxes at all. (According to
a recent report from the Center for Tax Justice, a liberal
watchdog group, 82 of America's largest corporations paid
no income tax in one or more years of Bush's first term.)
Bush's tax reform, in other words, is shaping up to be not
merely a departure from the spirit of the 1986 reform --
but a wholesale repudiation of it.
Though the end result was far from foreordained, the basic
outlines of what would become the Tax Reform Act of 1986
began bubbling up on both sides of the aisle a couple of
years into Reagan's first term. Liberal Democrats had long
favored dumping corporate deductions and tax shelters for
the wealthy; Republican supply-siders -- the architects of
Reagan's large 1981 tax reduction -- were looking to push
new cuts through Congress but needed to assuage deficit
hawks in both parties who were concerned about the rising
budget shortfall. Some of Reagan's political advisers had
become concerned that loopholes for the wealthy might
become a Democratic campaign issue in '84, while others had
come to believe that narrow tax breaks weren't a very
effective way to encourage growth in particular industries.
Economists of all stripes agreed that the code had become
so complicated by loopholes that it was sucking up
potential growth. ''Pre-1986, you could get a tax reduction
for investing in tobacco farms and bull sperm and windmills
and things like that,'' notes Stephen Moore, then a budget
expert at the conservative Heritage Foundation and now a
senior fellow at the Cato Institute. ''The tax code looked
like a piece of Swiss cheese.''
But that wasn't an accident. During the 70's and early
80's, the Beltway lobbying industry, known colloquially as
''K Street'' after the downtown avenue populated by trade
associations and corporate offices, metastasized into the
Fifth Estate of American politics. Over the years, these
lobbyists spent millions of dollars to persuade members of
Congress to carve this or that break into the tax code,
breaks that benefited thousands of well-connected companies
and individuals. And they were a powerful force against
reform. As the reporters Jeffrey H. Birnbaum and Alan
Murray explained in their definitive 1987 account,
''Showdown at Gucci Gulch,'' ''the groups with an interest
in the existing tax system were well organized and ready to
defend their breaks at a moment's notice; the populace who
stood to benefit from lower rates was unorganized and
diffuse.'' In 1985, the year tax reform began to be
seriously considered in Washington, corporate PAC's
substantially increased the amount of money they pumped
into House and Senate coffers -- cash that exerted a
powerful effect on rank-and-file members of Congress. Only
by working in concert, from a shared sense of what reform
should look like, could Democratic and Republican tax
reformers keep a deal from being scuttled.
In policy terms, that required the '86 effort to be a
compromise between two groups that had vastly different
visions of what an ideal tax system would look like.
Ultimately, each side achieved some of its goals: liberal
reformists got more corporations and high earners back on
the books, while conservatives got lower marginal tax
rates. ''Any time you change the tax code, it's obviously
going to be controversial,'' says Ronald Pearlman, a
Georgetown University law professor who helped create the
Reagan administration's initial package of reform
proposals. ''And it's nice to be able to say you've got
bipartisan support for big, gutsy changes.''
The last four years in Washington have upended most of the
political realities that fostered the bipartisan results of
1986. The most visible change is that Washington is no
longer a functionally bipartisan town. Three successive
electoral defeats have rendered the Democrats, once
Washington's entrenched ruling class, a beleaguered
opposition party. Significantly, Republicans have not only
widened their hold on power but also tightened it. In the
10 years since the G.O.P. takeover of Congress, the House,
in particular, has become progressively more centralized
and top down than it was during the era of Democratic
control. Important legislation tends to emerge from the
leadership offices and be put to up-or-down votes;
rank-and-file Republicans play a diminished role in policy
making, and the Democrats next to no role at all. In
November, Representative J. Dennis Hastert, the House
speaker, announced that he wouldn't allow votes on any
bills that lacked majority support among the Republican
caucus, whether or not measures enjoyed majority support
among the country's elected representatives as a whole.
As Bush's second term takes shape, the G.O.P. has little
incentive to broker compromises, and by all appearances,
not much interest either. That means that to a degree
unimagined in the 80's, tax reform under Bush can be a
discussion within the Republican Party, among people who
share a basic sense of how the tax code needs to change.
The various constituent parts of the conservative
coalition, of course, have multiple stakes in the broader
agenda of tax cutting. Large industrial concerns might be
most interested in lowering the tax bill on purchases of
equipment; rich party donors would like to see the top
marginal tax rates reduced; and social conservatives have
rallied around calls for permanently eliminating the
so-called marriage penalty. The key visionaries of
conservative-style tax reform, however, are a vanguard of
anti-tax activists, conservative economists and a handful
of Republican politicians who have made taxes their pet
issue. Like all conservatives, they think that the
government is too big and that taxes ought to be lower and
flatter. But This group has also come to share a few
articles of faith about the relationship between taxes and
growth. One is that for years the American economy has been
enormously handicapped by excessive taxation on savings and
investment; because people and businesses are discouraged
from saving, the theory goes, there is a pervasive shortage
of capital for future investments. Another belief is that
lifting those burdens would create a permanent increase in
most Americans' standards of living. Still another belief
is that cutting all those taxes won't worsen the deficit,
because the growth the cuts will unleash would produce more
than enough income -- and, therefore, tax revenue -- to
make up the difference.
Most economists typically find this line of argument
questionable. (When rates on savings and investments were
cut back beginning in the 70's, they note, the savings rate
actually went down, indicating that people's propensity to
save probably isn't greatly affected by changes in marginal
tax rates.) So Bush's proposals are unlikely to win the
kind of expert consensus that the 1986 one did. But if the
administration can count on much more resistance to its
vision from professional economists, it can count on far
less from the constituency that was once the most
formidable obstacle to fundamental reform of the tax code:
K Street. In part, this is a consequence of the broader
power shift in Washington. When the parties shared power,
business lobbyists could bid Democrats and Republicans
against one another. (Reagan's 1981 tax cut became a
deficit exploder in part because Congressional Democrats,
eager to win back business support following the disastrous
1980 election, were competing against their Republican
counterparts to see who could open more corporate loopholes
in the tax code.) With Democrats more or less out of the
picture, lobbyists must rely far more heavily on the G.O.P.
to look after its interests -- and that gives Republican
leaders more leverage over K Street than vice versa.
Thanks to this arrangement, Bush's first three tax bills
were fairly ''clean'' ones, containing relatively few
special-interest breaks narrowly benefiting a given
industry or corporation. That doesn't mean K Street hasn't
done well under Republican rule. Bush's fourth tax cut -- a
bill originally intended to fix an existing tax provision
deemed illegal by the World Trade Association and passed
with little public notice shortly before Election Day --
was packed with billions of dollars worth of corporate
giveaways, most of it to the manufacturing sector. But it
does mean that the party can compel business interests to
delay narrow gratification -- special-interest loopholes
that arouse public ire and inspire a political response --
in support of a broader and more ambitious ideological
agenda that will pay dividends down the line. ''As long as
we have the annual tax cut, all the business guys are in
line,'' Norquist explained to me, noting that business
trade associations like the National Association of
Manufacturers helped lobby for Bush's 2001 cut, even though
it did nothing to reduce corporate rates. Norquist
described his pitch to K Street this way: ''This year,
we're doing a tax cut. You want to help us with this year,
you're at the front of the line for next. You didn't get in
this year, you can get in line for next year. But we're
going to be doing a tax cut, however small, because we can
go as small as we have to to get a tax cut every year. That
is what we did for the last four years. That is what we are
going to do for the next four years.''
Just as important as the sequencing of Bush's tax cuts has
been the substance of them, which provides a hint of where
tax reform is likely to go. In theoretical terms, Bush's
cuts have brought the United States tax code closer to a
system under which income from savings and investments
aren't taxed at all and revenues would be raised
exclusively from taxes on labor. The consequence of those
policies is that a greater proportion of tax revenues now
come from what the middle class earns and a smaller
proportion from what the wealthy earn. Whatever changes the
Bush administration pursues, there is every reason to
believe it will aim to move further in that direction. ''I
think Bush does have a master plan on tax policy,'' Stephen
Moore says. ''The goal is to eliminate all taxes on savings
and investment. That means no capital-gains tax, no
dividends tax, no estate tax, no tax on interest.''
How you view this arrangement depends a lot on whether you
buy the assumption that letting the wealthy off the hook
will eventually benefit everyone else. Early one recent
Saturday morning, I paid a visit to John Podesta, the last
chief of staff to serve under Clinton, at his home in
Washington. He greeted me at the door in sweat pants and a
T-shirt, and we sat down at his kitchen table to talk
taxes. Podesta has a lean, shrewd face, a twinkle in his
eye and a reputation as one of the party's canniest
operatives; these days, he heads the Center for American
Progress, which he founded a little more than a year ago to
incubate new policies and approaches among left-of-center
types.
Podesta has little faith in the conservatives' trickle-down
approach. He also says it is bad economic policy --
''fatally flawed,'' as he put it. ''We're already seeing
the current account deficit increase by $600 billion a
year,'' he continued. ''People are mortgaged to the hilt.
The middle class is now being fundamentally squeezed.
They've gotten no benefit from the tax reduction. G.D.P.
growth is going almost all to corporate profits. And we're
creating an overall economic circumstance in which the
dollar is certain to drop, interest rates are certain to
rise and growth over the long term looks kind of sketchy.''
To understand why the G.O.P. has pursued such a policy,
Podesta argues, you have to look at the political
dividends, not the economic ones. ''What are the structural
elements of what they are trying to do with the tax code?''
he began, busying himself at a small coffee machine. ''I
would say there are three. One is to eliminate taxation on
wealth and investment. Second is to create a revenue stream
that aims at a government the size of which we haven't seen
almost since before the Depression.'' Already, he points
out, the government takes in far less than it spends,
forcing the Bush administration to borrow billions of
dollars to cover the revenue lost from cutting taxes.
''Three is that if you build in taxation only on wage
income, you have massive resistance by the middle class to
letting those taxes rise. So you've kind of locked in three
structural components that end up being highly beneficial
to wealthy people, and I think, from a conservative
governance point of view, create not just restraint on the
growth of government, but essentially pressure to downsize
the government.''
Podesta's analysis suggests that conservative tax reformers
are in something of a bind: telling middle-class voters you
want them to pay for more of the government so that they
will want to shrink it is not a very good way to win their
votes. Conservatives insist, however, that their plans not
only won't deepen the deficit; they won't increase the load
on the middle class either. Not long ago, I spoke with
South Carolina's new Republican senator, James DeMint, who
over the past few years made a name for himself on tax
issues in the House. DeMint's campaign Web site included
pictures of him standing next to a tall stack of I.R.S.
regulations and displayed statistics like the number of
pages in the tax code (45,622) and the number of hours
Americans spend each year filling out tax returns (6.1
billion), sure to ruffle taxpayers' feathers. Like many
conservatives, he says that the middle class is already
paying for most of the government -- they just haven't
figured it out yet. ''People don't understand the cost of
government,'' he told me.
DeMint says he believes that taxes paid by corporations and
wealthy investors tend to end up costing middle- and
working-class people money, in the form of higher prices at
the cash register or the lost jobs that result when rich
people have to pay the estate tax instead of investing in,
say, steel factories. Taxes on capital, from this point of
view, are inevitably self-defeating: they are simply passed
along to the rest of us, along with the accountant's bill.
But because average workers pay less in ''visible'' taxes
than corporations and the rich, they tend to think they're
getting a good deal out of the federal government.
''They're paying a disproportionate share of their income
in taxes, and they don't know it,'' DeMint said. ''So,
politically, they're not activated to change it, because
they can't see the taxes. They don't have that sense of
urgency.''
DeMint advocates scrapping the entire tax code, including
income taxes and taxes on wealth, and replacing it with a
flat national sales tax. By his reasoning, that would
convert all the hidden taxes embedded in the price of goods
and services into one tax that is printed at the bottom of
a cash-register receipt. Middle-class people wouldn't pay
any more in federal taxes than they're effectively paying
now, and they would end up economic winners, since the
simpler tax system that resulted would be less of a drag on
the economy. And once people were paying all their taxes up
front, and could see how expensive the government really
was, they would be much more inclined to demand huge cuts
in spending than they are today. ''The intent here is not
to shift the tax burden to the poor,'' he said, ''but to
allow every American to see the real cost of government.''
Left unsaid, of course, is the alternative: if middle-class
taxpayers wanted to keep the same size government that
exists today, they would have to pay for it up front.
But if you don't share conservatives' assumption that the
middle class ends up footing the bill for onerous taxes on
capital, a new flat sales tax would -- as Bush's previous
cuts already do -- simply shift even more of the burden of
taxation from businesses and the wealthy over to the middle
and working classes. ''Any responsible person advocating
tax reform has to admit the following: A reform that is
revenue-neutral has losers,'' said Gene Sperling, a leading
Democratic budget expert who served as a top economic
adviser for John Kerry during the 2004 presidential
campaign. ''There's a basic math to that. Every Republican
flat-tax proposal lowers the rate on people at the top.
Now, if you're raising less revenue from the most well-off,
one of two things are going to happen. You're either going
to raise more revenue from the middle class, or you're
going to pass on more debt to our children. The only
argument against that is supply-side magic -- that somehow,
lowering taxes will generate more revenue so there's a free
lunch for everyone.''
When I noted that Republicans seem much more energetic
about tax reform than Democrats, Sperling got a little
exasperated. ''It's not that Republicans are so much more
noble,'' he said. ''The usual dialogue that happens on tax
reform is, people love the idea of reducing deductions and
lowering rates in theory. When they get to the specifics,
they realize that they have to get rid of very popular
deductions that people know well for the possible benefits
of a system they don't know.'' For example, proposals for
replacing the income tax with a tax on consumed income --
that is, the income people use to buy things -- have
circulated among left-of-center tax experts for years.
DeMint's sales tax is one version of a consumption tax.
But, Sperling argues, it's a lot harder to design a version
that is actually revenue-neutral, progressive in structure
and politically viable: ''First, you're getting rid of
popular breaks like the mortgage deduction, and second, by
the time time you've finished exempting food, clothing and
so forth, the new tax has gotten pretty high.'' And unlike
Republicans, he maintains, Democrats aren't willing to
pretend that there can be tax reform without any losers.
(Later this month, Podesta's policy institute will release
a detailed plan that eliminates loopholes, cuts taxes on
the middle class and creates more savings incentives for
those without much wealth income -- but finances it mostly
by reversing Bush's rate cuts on the rich, who, of course,
would be the losers should Podesta's plan come to pass.)
So what will Bush propose? The president did cause a minor
stir during the campaign in the summer when he mentioned
that a national sales tax was ''the kind of interesting
idea that we ought to explore seriously.'' But he has since
retreated into anodyne rhetoric about simplifying the code
and promoting savings and investment.
In part that's because a sales tax is indeed controversial;
DeMint's Democratic opponent temporarily erased a
double-digit deficit in the polls by hammering him on the
sales tax, though DeMint did win in the end. But it is also
because, while Republicans generally know what direction
they want to move in, they don't agree on exactly how to
get there. DeMint's is only one of several Republican
tax-reform plans that have percolated through Washington in
recent years. There are other sales-tax proposals, plus
plans that put a flat tax on all forms of income or
institute a European-style value-added tax (V.A.T.),
basically a sales tax levied at each stage of production.
In theory, the members of Bush's tax commission are
supposed to approach their efforts with an open mind. In
practice, its purpose is to test the political waters, to
see which version of conservative tax reform would be most
palatable to the public and how far it can be pushed.
''It'll come out with three or four proposals, which are
already written, and already on people's desks,'' Grover
Norquist told me. ''So this is not a commission to invent
something, or several somethings. This is a commission to
discuss several somethings. Poke 'em, bring 'em around the
country, test-fly them, run 'em up the flagpole, see who
shoots at it, see who salutes.'' Norquist argues that much
as Bush's 2001 Social Security commission helped detoxify
the argument over whether to privatize that program, the
tax commission will make it safer to propose new ideas,
even radical ones. Given the ultimate end goals of
conservative tax reformers, this is no small concern: as a
confidential 2002 memo prepared by the Treasury Department
notes: ''Any reform is likely to have vocal losers and
largely silent winners. In other countries, the adoption of
a consumption tax has led to election losses for the
incumbent party.''
For now, the Bush administration appears to be heeding that
warning. After floating a few provocative ideas in the
press last year -- eliminating the deductions for mortgages
and state and local taxes, benefits enjoyed
disproportionately by ordinary workers and families --
White House officials signaled that they were more likely
to pursue the kind of incremental changes Bush has already
shown a taste for when debate commences in earnest. ''We
don't have to decide whether we want a flat tax, or a
V.A.T. or a retail sales tax,'' Norquist said. ''Because
there are a dozen things you have to do that would get you
to the point which would get you to one of those three.''
But as Bush's first four years have made clear, incremental
doesn't equal inconsequential. During his first term, the
president floated the idea of large tax-free savings
accounts, sort of like supersize I.R.A.'s, in which people
who already have lots of money to save -- that is, high
earners -- could shelter large amounts of income. Add in
further cuts in taxes on capital gains and dividends,
elimination of the estate tax and a move to make Bush's
earlier income-tax reductions permanent, and even without
big all-at-once tax reform, conservatives will come pretty
close to legislating a new contract between the government
and its citizens, one that has the power to change politics
profoundly.
''Here's the danger,'' Norquist said. ''They'll say, 'Let's
wait for tax reform,' which will be this sort of
angels-dancing-on-the-head-of-a-pin argument. That may
never be real. There may never be something that everyone
agrees is tax reform. What was it -- Zeno's paradox, where
you never quite get where you're going?
''You keep taking half-steps, eventually you're pretty darn
close,'' he went on to say. ''I'll take three half-steps
and call it a day.''
Nicholas Confessore, a former editor at The Washington
Monthly, is a reporter for The New York Times.
http://www.nytimes.com/2005/01/16/magazine/16TAXES.html?ex=1106926287&ei=1&en=ffec27d3dd9d632d
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