President Bush's tax advisory commission indicated on Tuesday that it would not propose replacing the income tax with a national sales tax or a value-added tax, but would recommend limits in the popular tax deductions for mortgage interest and employer-provided health insurance.
The commission, scheduled to make its recommendations to the president by Nov. 1 on how to change the tax system, did not take votes or dwell on details, but its consensus on many important issues was clear.
"We're getting focused on the income tax as a base," said the panel's chairman, Connie Mack, a former Republican senator from Florida.
Many prominent conservatives have argued over the years that the income tax is a drag on the economy and should be scrapped in favor of a consumption tax, a tax based not on what people earn, but on what they spend.
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Summary by appender:
* "Examination" of ways to modify the deductions for mortgage interest and health insurance, "with the benefits (of the mortgage interest deduction and non-recognition of employer paid health insurance premiums) going "disproportionately to the most affluent taxpayers."
* For mortgage loans up to $1 million, taxpayers can now deduct all the interest.
Home Mortgage Deduction** One proposal discussed on Tuesday would cap the deduction at the maximum mortgage the Federal Housing Administration will insure.
** FHA insurance is location specific -- and changes annually, varies depending on housing costs in each county. Presently the maximum loan limit now of $312,895 in communities where housing is most expensive and a national average of $244,000.
** Change the interest deduction to a credit, meaning that taxpayers with the same size mortgage payments would get the same tax break regardless of what tax bracket they were in.
** Limit the deduction to 15 percent or 25 percent of a taxpayer's mortgage interest payments. The wealthiest taxpayers can now deduct 35 percent of the interest.
Health Insurance** Limit tax-free premium payments to the average cost of the premium the government pays for federal workers. That is now about $11,000 a year for family coverage.
** Under the current law, employers can deduct full cost of health insurance, and the workers are not taxed on this benefit.
** The main proponent of the health insurance proposal, , a former chairman of the Federal Trade Commission and a law professor at George Mason University, said limitless tax-free health insurance premiums encouraged workers to demand and companies to offer overly generous insurance and resulted in increased health costs. Note: This is the CATO, Federalist, and AEI party line.
* The commission members decided that another popular deduction, for charitable contributions, should be expanded rather than cut back What do you expect from our "faith based" President?.
* Connie Mack and John Breaux said the housing and health proposals they were considering would not raise enough to offset fully the cost of abolishing the alternative minimum tax. This left open the possibility that they would end up recommending a limit on the deduction of state and local income taxes.
---Edited to comply with the "Fair Use" provisions of the Copyright Code, Title 15, US Code---
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