This Business Week editorial is about the best thing I've yet read on Bush's upcoming tax reform (italics mine):
one of the mandates President Bush gave to the tax panel was that its recommendations should raise about the same $2 trillion that the feds currently collect annually. That means any changes will shift, not lift, the tax burden. So there will be winners and losers aplenty. Should we eliminate all taxes on capital assets like stocks or bonds, stimulating investment but giving the wealthy a windfall? Will Americans accept an easy-to-understand flat tax or consumption levy if the cost is the end of deductions for state and local taxes or home mortgage interest? And which business taxes may have to be increased by $600 billion over the next decade so the unpopular alternative minimum tax for individuals can be eliminated?
Such tough choices are sure to elicit howls of protest from the public and business, each eager to protect existing tax preferences. That's why the Bush Administration should be preparing a fallback plan of less ambitious tweaks to the current system, such as partial AMT relief, and moves to improve tax fairness, such as tilting savings incentives more toward lower-income groups. The Treasury should also launch a big effort toward tax simplification. There are myriad confusing, often overlapping tax policies -- for instance, there are currently more than a dozen tax-advantaged savings incentives -- so simply bringing some order to them would go a long way toward making Apr. 15 easier to stomach.
Ideologues will surely call this small thinking that misses an opportunity to impose some much-needed discipline on our runaway federal budget. But tax policy shouldn't be used as a backdoor means to effectively starve government. If Americans want smaller government, they should demand that their elected officials show fiscal discipline and curb spending. Taxes then can easily be lowered.
I'm a bit confused as to where he wants to go with this. Clearly, given the timing, Republicans want to focus the 2006 election on taxes, their strongest issue. But how? Assuming Bush really does pick from the menu his commission offers, all choices will be revenue-neutral. That means, as Business Week says, that he can shift the burden, but not change it. We know he's not going to ask the rich to shoulder more nor push it on the back of corporations, so where does it go, the middle class? If he eliminates loopholes in a simplification effort, won't he have have to raise tax rates? If he endorses a consumption scheme, won't he be slaughtered over the 20%-30% sales tax it'd mandate? Won't tiny changes be too small to act as an effective issue in 2006?
He could, of course, ignore his commission, but that'd be a strange move too, and with deficits as they are, congressional and public appetite for tax cuts don't make for a straight shot. So where are the politics of this? According to polls, they're in raising rates on the rich. But that doesn't help Bush at all. He may, in the end, follow the Homeland Security Strategy and endorse something broadly popular with a single provision that Democrats can't swallow, thus destroying their support and putting them on the wrong side of a key issue. But tax theatre ain't nearly so compelling as terrorist theatre, and I can't imagine the weakened Bush we see now could make it work.
So where does he go?
