What A "Fairer" Tax Code Might Look Like (BusinessWeek, SEPTEMBER 20, 2004)

President George W. Bush has the tax code back in his sights -- but this time he's not just talking about tax cuts. In his Sept. 2 [2004] speech to the Republican National Convention and on the stump since, he has called for making the tax system "fairer, simpler, and more pro-growth" than the current "complicated mess." Few Americans would argue with that goal, but the President is playing it safe: He's postponing the details until next year, when he would name a bipartisan commission to design a plan. Despite that fogginess, Bush's three previous tax cuts and other ideas he has floated offer some hints as to where Bush-style reform might go. Here's a look ahead:

What A "Fairer" Tax Code Might Look Like (BusinessWeek, SEPTEMBER 20, 2004)

※ 메모:

• Why did Bush bring this up?No politician ever lost votes by attacking the Internal Revenue Code. As Ronald Reagan showed in 1984, calls for fairer, simpler taxes are popular -- and sometimes lead to major changes, such as the landmark Tax Reform Act of 1986.But Bush has more than campaign rhetoric on his mind. He and his advisers believe that reducing taxes on savings and investment income helps spur economic growth.
  
  In his first term he reduced the effective tax rate on capital income{자본소득에 대한 유효세율} by nearly one-fourth:
  (1) by slashing rates on dividends and capital gains and
  (2) by expanding business tax breaks for purchasing capital equipment.
  
  Now some of his advisers see tax reform as the next step toward driving taxes on investment even lower. "A zero tax on capital is the right way to go," says R. Glenn Hubbard, former top economic adviser to Bush and godfather to his first-term cut in taxes on dividends.
  
• If they could muster the political will, such an approach could actually help the White House meet some expensive goals -- like corralling the runaway alternative minimum tax. That levy forces individuals to figure their taxes twice, then pay the higher tab. Intended to snag the very rich, the AMT is now hitting middle-class families because it isn't indexed for inflation: The number of AMT taxpayers is projected to soar, from 3 million in 2004 to 23.5 million in 2008. Repairing the AMT will cost upwards of $600 billion. That tab might be easier to bear as part of a sweeping tax overhaul.
  
• The existing code is a complicated hybrid. We call it an income tax, but it doesn't actually tax all income: The value of fringe benefits, such as health insurance and parking, goes untaxed. And the treatment of investment income verges on haphazard. About half of all capital income goes to tax-exempt accounts such as 401(k)s or pension funds. And companies often shelter their earnings from corporate taxes. On the other hand, many companies do pay tax on their profits, then investors pay tax again on dividends or capital gains. So returns on investment may be taxed twice, once, or not at all.
  
• A consumption tax, by contrast, is simply a levy on spending. In other words, you would take all the money you earn, subtract what you save, and pay tax on the rest.
  
• How would Washington collect such a tax? It could add {1: a sales tax} to the final price of goods and services we buy at the retail level, just as most states do today. Or it could have businesses pay the tax at each stage of production and pass the cost on to consumers in the form of higher prices. This is {2: the value-added tax, or VAT}, that most European countries use. {3: Finally, the feds could collect the money through a system of tax withholding and annual returns, much as they do today.} That version is called a "consumed income tax." How would a consumed income tax work?Think of an unlimited individual retirement account. You would simply list your income -- including, possibly, all your fringe benefits and other goodies that are currently excluded -- then subtract everything you save and invest and calculate tax on what is left. Investment earnings would be taxed once they are cashed in and you have used them to buy something.