PEP, Pease, Presidents

HERE'S A MODEST tax proposal for President Bush: Cancel two tax-cut provisions that haven't yet taken effect. These tax cuts weren't part of Mr. Bush's original tax proposal but were inserted into his 2001 tax package. They begin to phase in next year unless Congress acts. And 97 percent of the cuts will go to the 4 percent of U.S. households with incomes greater than $200,000; more than half to the 0.2 percent of households with annual incomes of more than $1 million. During the first 10 years they are fully in effect, they will reduce government tax revenue by close to $200 billion, including interest, and possibly much more if, as the administration has promised, there are adjustments to the alternative minimum tax (which would otherwise recapture some of taxpayers' savings from these breaks).

The cuts would repeal two provisions enacted as part of the first President Bush's deficit reduction plan. The provisions -- known as PEP, for Personal Exemption Phaseout, and Pease, for its author, the late Rep. Donald J. Pease (D-Ohio) -- essentially make more income of wealthy Americans subject to taxation. In a perfect tax world, PEP and Pease would be abolished. They are complex and at times unfair (for example, PEP penalizes those with larger families). PEP and Pease would be great candidates for change in the broader tax overhaul Mr. Bush is planning.

But of all the complicated tax provisions in the most complicated tax code in the developed world, why repeal these two? After all, even if PEP and Pease were untouched, wealthier taxpayers would reap big benefits from the remaining tax cuts. For example, in 2010, when the repeal is to be fully effective, households with incomes of more than $1 million will get tax cuts averaging $108,000 from other tax provisions adopted in 2001 and 2003, according to calculations by the Tax Policy Center. With the effect of estate tax repeal, this group will reap average cuts of $133,000. Getting rid of PEP and Pease brings that total to $152,000.

Given the deficits that have piled up on his watch, and the growing costs of war in Iraq, it makes sense to ask: Why does President Bush think this tax break is necessary?