Bush eyeing major tax-code overhaul

Sunday, August 22, 2004

WASHINGTON -- Amid signs that the economy is cooling, President Bush is showcasing initiatives for a second term under the banner of an "ownership society" in hopes of bolstering his economic stewardship credentials.

His platform includes initiatives to help people buy homes, start businesses, hone job skills and set up tax-free retirement and health care accounts -- plus a still unspecified tax-code overhaul.

But his options are severely limited by a record federal budget deficit -- swollen by two large tax cuts, a major expansion of Medicare and the costs of an unpopular war in Iraq.

And Bush advisers remain divided on how much tax overhaul he should advocate.

With polls showing him lagging challenger John Kerry on handling the economy, Bush's campaign team is looking for ways to demonstrate boldness and new ideas. Proposing a major overhaul of the tax code would seem to fit the bill.

"It's very hard to propose tax reform in the middle of an election campaign. But one area that does resonate with voters is tax simplification," said Alan J. Lichtman, a political scientist at American University.

There is clear political appeal to proposing a fix for a system that millions of Americans consider unfair and overly complicated. The tax code "is, no question, complex. The more simple it is, the better it is for the American people," Bush said recently.

But pitfalls lurk in the details.

It's hard to come up with tax overhaul that's both fair to all and "revenue neutral." And Democrats are poised to denounce any Bush tax change as favoring the wealthy.

Bush's recent suggestion to a Florida supporter that a national sales tax was "an interesting idea" worth serious consideration drew jeers from Kerry, who said it could mean a 20 percent sales tax on everything. Key Bush aides quickly backpedaled.

Pushing for broader tax-code overhaul are Treasury Secretary John Snow and Budget Director Josh Bolten.

House Speaker Dennis Hastert called for a national sales tax or consumption-based tax in a new book. Stephen Moore, president of the Club for Growth, said such an overhaul "would be rocket fuel for the economy."

And publisher and one-time GOP presidential candidate Steve Forbes renewed his call for a flat-rate income tax. "It would do wonders," he suggested.

But conservative economist Bruce Bartlett, a former adviser to Reagan and Bush's father, suggested the president try to make the current tax code more efficient -- rather than ditching it entirely. "I think as a first step, we should take some of the silly stuff out of it that everybody realizes is not a good idea," Bartlett said.

The president seems most likely to make a broad call for simplification in his acceptance speech without being specific, while renewing his request that Congress make permanent tax cuts due to expire over the next few years.

Snow said on Friday that Bush hasn't decided yet how far to go. "But we clearly have a lot of room for improvement in this code," the treasury secretary told cable channel CNBC.

Bush's "ownership" platform includes several unfulfilled campaign proposals from 2000. One would allow younger workers to divert some Social Security taxes into private government-sponsored retirement accounts. Another would create tax-free "health savings accounts" that workers could take from job to job.

Bush aides say the ownership theme helps underscore differences with Kerry, who advocates raising taxes on the most affluent households and spending more on health care, education and other domestic programs.

Democrats counter that the strategy just shows Bush is out of touch.

"How can George Bush talk about encouraging ownership when his administration has made it a hardship for families to get good-paying jobs or pay for the skyrocketing costs of health care and college?" asked Kerry campaign spokesman Phil Singer.

EDITOR'S NOTE -- Tom Raum has covered Washington for The Associated Press since 1973, including five presidencies.

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