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Tax Reform Veterans See Hurdles Ahead

Beyond decades-old proposals for a flat-tax or a national sales tax, little new work exists on tax reform. Bush's Treasury Department did complete a strongly argued internal paper on the need for tax reform in November 2002. But rather than propose an actual plan, the paper cautioned that many existing proposals were politically unworkable. A single flat income tax rate, for example, "would necessarily reduce the tax burden on high-income individuals" or "lead to an increase in the tax burden on lower income taxpayers," the study concluded.

The paper also warned of potentially negative political consequences for the party pushing reform, concluding: "The transition accompanying any fundamental tax reform may be disruptive and produce windfall winners and losers. . . . The economic benefits of any fundamental tax reform are uncertain."

Bob Packwood was one of the leaders of the last major tax overhaul. (File Photo)

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With that backdrop, Bush said he will name a bipartisan panel late this year or early in 2005 to draft reform plans by June. Snow would present Bush his proposal by the fall, for a legislative push in 2006.

Rostenkowski said that schedule is too slow.

"We're a year away from having a bill introduced," he said. "I don't think the president can waste that much time. You're only good two years into your second term. After that, you're on your way out."

Another difference between the present and 1986 is Democratic control of the House then, versus Republican control today of the Senate and House along with the presidency. Bush has mandated that any tax reform fully offset tax cuts with loophole closures or other ways to raise revenue, meaning there will have to be winners and losers in the bill, said William G. Gale, a tax economist at the Brookings Institution. With a divided House and White House in 1986, there was an understanding that both sides would have to compromise.

With Republicans in full control, tax reform may prove to be like President Bill Clinton's health care effort in 1993, when Democrats controlled Congress and the White House, Gale said. The Republicans saw no need to compromise, and the effort collapsed during Democratic squabbling.

During his first term, Bush shied away from working collaboratively with Congress on complex domestic policies, preferring to either ram proposals through with minimal compromise, as he did with major tax cuts in 2001 and 2003, or let Congress lead him, as he did with last year's Medicare bill.

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