Treasury Department examines alterations for simpler tax code

WASHINGTON -- The Treasury Department is studying ways to revamp the tax system, perhaps by taxing spending instead of earnings. Republicans say the exercise is aimed at enhancing fairness and simplicity; Democrats say it's driven largely by politics.

Treasury officials are offering few details, but private analysts say that among options are shifting federal revenue collections toward a national sales tax, a "flat" or single-rate income tax or a value-added tax. A value-added tax is in effect a sales tax imposed at each level of production of goods and services and is widely used by European governments.

"We're looking at simplification proposals ranging from the very narrow to the broad," said Michele Davis, spokeswoman for Treasury Secretary Paul O'Neill.

Davis said the Treasury effort is a wide-ranging response to a request President Bush made early this year for simplification proposals. She said she is not sure when recommendations will be ready for him, though others outside government said they believe Bush could have the ideas in hand by next spring.

Parties split

Though nearly everyone agrees that the tax code is far too complicated, there are stark disagreements between the two parties over possible remedies. Should Bush commence a major effort to overhaul the tax system, it could become a top-tier political issue by his 2004 re-election campaign, although partisan disputes probably would hinder enactment of changes until later.

"No matter how you do it, it's a very, very tough road politically," said Eugene Steuerle, a Treasury Department official under the first President Bush and now a senior fellow at the liberal-leaning Urban Institute.

Since tax laws were last streamlined in 1986, they have grown ever more complex. Both parties have periodically proposed solutions. Republicans have generally focused on easing taxes on many corporations and private investors, while Democrats generally have been more protective of lower-income people.

With budget deficits roaring back, lawmakers would be under pressure to recoup most if not all the $150 billion raised annually from corporate income taxes and the $860 billion a year from individual income taxes. Overall, the government collects $2 trillion in revenue each year.