Social Security reform, launched so confidently by President Bush last year, now has all the buoyancy of a hurricane-battered Mississippi gambling boat.
Enter tax reform.
Last January, the president named an Advisory Panel on Federal Tax Reform to develop ideas for streamlining the elephantine U.S. tax code while Congress was working on Social Security. The commission has been working away and released some preliminary proposals last week, ahead of its Nov. 1 deadline.
If you thought private Social Security accounts were an incendiary idea, get a load of what the tax panel is suggesting – limiting deductions for home mortgage interest and restricting deductions for employer-provided health insurance. And the panel reportedly is still toying with the idea of limiting deductions for state and local income taxes. (The group is recommending that the deduction for charitable donations be expanded.)
There are powerful constituencies – businesses and private citizens alike – that benefit from the mortgage, health insurance and local tax deductions. (About 40 million taxpayers take the mortgage-interest deduction.) So, the chances of changing those three seem slim, given the political disarray among Republicans in both Congress and the White House.
Anyway, Bush is under no obligation to agree with the panel’s recommendations or to push them on to Congress. It’s hard to imagine he’ll take on anything so arduous under the circumstances.
“The politics are impossible,” says Leonard Burman of the Tax Policy Center.
Political hardship doesn’y mean that those deductions shouldn’t get a close look by policymakers sometime, and there also is one improvised explosive device lurking within the tax system that must be dealt with – the alternative minimum tax.
Originally designed to ensure that the richest of the rich paid at least some taxes, the alternative minimum tax has gradually spread to cover more and more taxpayers, because incomes have risen but the tax’s formula hasn’t changed. The tax now hits about 3 million families, but some estimates predict the levy will cover 30 million Americans by 2010.
Most of Congress would dearly love to fix that problem and avoid voters’ wrath.
The alternative minimum tax is expected to raise $1.3 trillion in the next decade, so eliminating it will require tax changes elsewhere to cover the loss. (The panel was told to make recommendations that maintain the overall level of federal revenue.)
It’s a big problem, and it will be up to Congress to solve it – sometime. Hey, isn’t that the definition of the Social Security morass?
