commissioner.org
| Source | Ian Murray |
| Date | 03/02/06/17:19 |
| [speaking of redistributing wealth..........]
[New York Times] February 6, 2003 Bush's Plan Would Scrap Many Investor Taxes By EDMUND L. ANDREWS WASHINGTON, Feb. 5 - Piece by piece, President Bush's new tax proposals would go a long way toward achieving a goal cherished by many of his top advisers: eliminating taxes on investment income. White House officials insist that their proposals are not part of a comprehensive plan to push through a fundamental overhaul of the tax system. The goal, they say, is simply to encourage savings and eliminate obstacles to investment. The intent of the proposed tax-free savings accounts, Pamela F. Olson, the assistant secretary of the Treasury in charge of tax policy, said when the plans were presented last week is to "make saving simple for everyone and for every purpose." But experts say the myriad changes would do much more by shielding the vast bulk of most individuals' investment income. "It's a comprehensive tax shelter," said Alan J. Auerbach, a tax expert at the University of California at Berkeley. "It's huge, but the costs don't show up in the budget as being huge." President Bush personally unveiled the White House proposal to eliminate taxes on most corporate dividends, a move that would cost the Treasury $300 billion over 10 years. That would be the first big step in making investment income tax-free. But more important, in the view of many experts, is Mr. Bush's even newer but much less trumpeted proposal to revamp and expand the nation's laws on tax-advantaged individual retirement accounts. Under that proposal, a married couple with two children would be able to put up to $45,000 a year into a class of individual retirement and savings accounts. They would still have to pay taxes when they earned the income, but they would never have to pay taxes on any of the money that accumulated in their accounts after that. The new retirement plans would shield much more than income from stock dividends. They would also shelter interest from bank certificates of deposit and corporate bonds, and they would eliminate taxes on profits from all kinds of investments held in the new accounts. "This proposal is simply a Trojan horse to get us to the point where we don't tax investment income," said Representative Earl Pomeroy, Democrat of North Dakota, who has studied retirement issues for years. At least as envisioned thus far, people would even be able to take home-equity loans on their houses, deduct their payments of mortgage interest and put the money in a "retirement savings account" or a "lifetime savings account," where it could earn tax-free profits indefinitely. The costs to the Treasury would be minimal for the next few years, but they could be huge over the long run as investment income built up and remained tax-free forever. Administration officials have not provided any long-term price tag for the new retirement proposals. Because people will be encouraged to move money from the current individual retirement accounts to the newer plans, the Bush administration estimates that the measure will actually generate an additional $15 billion in tax revenue over the next five years. But after 15 or 20 years, experts say, the new plans would reduce tax revenues by many times that much money every year. The political prospects for the administration's plans remain far from clear. Congressional Democrats are adamantly opposed to the dividend tax proposal, and many Republicans are uncomfortable with it as well. The retirement plan, announced late last week, is so new that Republicans are just beginning to digest the ideas. Representative Bill Thomas, Republican of California and chairman of the House Ways and Means Committee, said on Tuesday that he would take up the retirement proposals only after dealing with Mr. Bush's original economic package, which includes the dividend tax cut. The retirement plan has already received support from lobbyists for the securities industry, which sees rich new opportunities for marketing new individual retirement plans and selling the securities to go in them. But insurance companies are expected to fight the idea because the new plans would undermine the tax advantages that many life insurance policies offer in sheltering the investment income that builds up from premium payments. States and city governments may fight both the dividend and the retirement proposals because both measures would diminish the tax advantage that municipal bonds have long enjoyed over corporate bonds and stocks. On the other hand, the popular appeal of Mr. Bush's proposals could trump much of the resistance. Though only a tiny percentage of taxpayers receive more than a few hundred dollars a year in taxable stock dividends, millions of people could be attracted to the saving and retirement plans. Each individual would be allowed to contribute up to $7,500 a year from earnings, and each couple could contribute $15,000, into a retirement savings account. The "lifetime savings accounts" would be even more alluring. Each individual in a family could contribute up to $7,500 a year from any source. So a family of four could put aside $30,000, and the family would be free to withdraw money for any purpose at any time. The lifetime accounts could even be used as checking accounts, used to pay daily expenses but also accumulating tax-free interest. If approved by Congress, all of this would go a long way toward reaching a broad goal of senior White House advisers, which is to move from today's complex tax system to a much simpler system based on either a flat-rate income tax or a consumption tax, a form of sales tax. Investment income would inherently be excluded from taxation under a system dominated by a consumption tax. A flat-tax system would not necessarily exclude investment income from taxation, though most of the proposals offered in the past have proposed just that. In any event, a flat-tax system that eliminated most deductions would apply a much lower tax rate than the one imposed at present. The big difference between Mr. Bush's current proposals and most of the academic plans for a radical tax overhaul is that the bigger plans would eliminate tax breaks like the mortgage interest deduction. Mr. Bush's proposals end the taxation on much, if not most, investment income, but they do not offset that with any new tax on currently protected items like home borrowing, charitable contributions and state taxes. R. Glenn Hubbard, chairman of the White House Council of Economic Advisers, is a fan of fundamental tax overhaul and has written extensively about how a consumption tax could work. But he said the new proposals were not yet part of a broader plan. "The president is a pretty straight shooter," Mr. Hubbard remarked last month. "If he wanted fundamental tax reform right now, he would have said so." |
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