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Correction to This Article
A Nov. 18 Business article on the Bush administration's tax reform plans incompletely identified Princeton economist Harvey S. Rosen. He is also a member of the White House Council of Economic Advisers.
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Bush Plans Tax Code Overhaul

"From my experience, I know that he believes strongly in broadening the [income tax] base, lowering the rates and taking the tax code out of business decisions. That's where he would start; those key fundamental philosophies will lead his decisions," said Mark Weinberger, a former assistant Treasury secretary for tax policy, now a vice chairman of Ernst & Young LLP.

To shepherd through its second-term agenda, the administration is seeking new muscle for its economic team. President Bush's top economist, N. Gregory Mankiw, will likely be leaving early next year, as will his economic policy director, Stephen Friedman.

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White House officials are pursuing prominent Massachusetts Institute of Technology economist James Poterba to replace Mankiw at the Council of Economic Advisers, according to several White House economic advisers. Tim Adams, the policy director of Bush's reelection campaign, is a top candidate for Friedman's job, but he has also been mentioned as a deputy White House chief of staff for policy or deputy Treasury secretary.

John F. Cogan, an economist at Stanford University's Hoover Institution and a veteran of the first Bush administration, may be called on to help push through Social Security changes. Princeton University economist Harvey S. Rosen briefed Bush last week on tax overhaul options and may be named executive director of the soon-to-be-named bipartisan panel on tax reform.

The personnel changes may be crucial if Bush hopes to realize his twin goals of overhauling both the Social Security and tax systems, advisers say.

"This will all be a function of personnel," said one economic policy adviser and former White House aide.

Pamela F. Olson, a former Bush Treasury official in close contact with administration tax planners, said the president will pursue a tax system where all income -- whether from wages, dividends, capital gains or interest -- is taxed only once. That would mean eliminating taxes on dividends and capital gains paid out of fully taxed corporate profits. Most investment gains are currently taxed at 15 percent.

The administration will also push hard for large savings accounts that could shelter thousands of dollars of deposits each year from taxation on investment gains, according to White House economic advisers who have been involved with the planning. And any tax reform, according to Treasury Department officials, would likely eliminate the alternative minimum tax, a parallel income tax designed to ensure that the rich pay income taxes but one that increasingly ensnares the middle class.

To pay for those large tax cuts, the administration is looking at eliminating both the deduction for state and local taxes, and the business tax deduction for employer-sponsored health insurance. That would raise nearly $926 billion over five years, according to White House and congressional documents.

Eliminating the state and local tax deduction, for example, would allow the administration to scuttle the alternative minimum tax and raise an extra $400 billion over 10 years, said Leonard E. Burman, a tax policy expert at the Urban Institute. That would be twice what the White House needs to fund the planned tax-free savings accounts, expanded retirement savings accounts and tax-free health savings accounts.

The tax panel will be given roughly six months to make recommendations, according to administration officials. Treasury Secretary John W. Snow would then come up with his own plan before the end of next year. That would give Bush all of 2006 to press Congress to enact the reforms, making the whole effort a two-year process.

In the meantime, lobbyists are running into skepticism on the part of corporations that might be touched by the changes. The corporate world is taking a wait-and-see position for the most part before organizing either for or against the effort.

Even allies have their doubts about how far Bush can go.

"The White House is dreaming if they think they can do all this," said Bruce Bartlett, a conservative economist with the National Center for Policy Analysis.

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