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Bush Expected To Delay Major Tax Overhaul

Social Security, Budget Move to Center Stage

By Jonathan Weisman and Jeffrey H. Birnbaum
Washington Post Staff Writers
Tuesday, December 28, 2004; Page E01

Wholesale changes to the tax code that just weeks ago were identified as a Bush administration goal by the end of 2005 are being pushed back for at least another year.

White House economists, Republican tax aides in Congress and outside economic advisers say key White House officials have determined that they have their hands full with Bush's pledge to overhaul Social Security and a budget plan that will demand politically painful cuts to non-defense spending.

The president barely touched on taxes at a recent conference.

The president will soon name a panel to examine tax policy, but he will leave it to the Treasury Department to monitor the panel's work. It is widely expected that Treasury Secretary John W. Snow will ultimately recommend incremental changes to the tax code, not replacing it with a new system, such as a single flat income-tax rate or a national sales tax, according to these sources.

"The likelihood of a really dramatic change is fairly low," said Kevin A. Hassett, director of economic policy studies at the American Enterprise Institute.

"They're sort of punting," said one economic adviser outside the White House who maintains strong contacts with administration economists, noting that Bush is not likely to turn his attention to the tax issue until 2006, and will do so then only if the Social Security and budget issues have been resolved.

Claire Buchan, a White House spokeswoman, said an overhaul of the tax code remains a Bush priority, noting the White House economic conference this month devoted a panel to tax simplification.

But the president may have tipped his hand during that two-day conference when he devoted his time to Social Security changes and limits on civil lawsuits. His one mention of tax simplification came when he reiterated his support for the permanent repeal of the estate tax, a move Bush said would eliminate 300 pages of the Internal Revenue Code.

"I think the president signaled that he is going 'incremental' on tax reform, not radical," a policy aide who recently left the White House said after Bush's speech.

Since the conference, tax policy analysts and business lobbyists have been looking for clues in a 2002 study done by the Treasury Department. Its author, former assistant Treasury secretary for tax policy Pamela F. Olson, said she has been fielding a steady stream of calls about the report, especially about its fifth, most incremental tax option. "There's certainly a number of people who have read it in recent weeks," she joked.

Under what has become known among lobbyists on K Street simply as "Option 5," Bush's previous tax proposals would be enhanced, not replaced. Washington would create lifetime savings accounts and retirement savings accounts to replace the current array of tax-preferred savings accounts for retirement, education and health care.

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