By Larry Jones
November 21, 2005

The President’s Advisory Panel on Tax Reform recommended significant reforms in the federal income tax system on November 1. The nine-member panel headed by former Senator Connie Mack (FL) was charged with the responsibility of coming up with recommendations to make the tax system simpler and fairer for all taxpayers, which most will agree is needed. But many groups are lining up in opposition to many of the Panel’s recommendations, particularly those that would eliminate or reduce many popular deductions such as the deduction for state and local (income, property and sales) taxes, and replace the deduction for mortgage interest with a tax credit equal to 15 percent of the mortgage interest, however, mortgage would be limited to the average regional price of houses ranging from about $277,000 to 412, 000.

In a November 1 press release, Conference President Beverly O’Neill expressed concerns about how eliminating these incentives could have a negative impact on the local economy and revenues. She said it “would hurt our ability to fund needed local services and build strong vibrant communities with good jobs.”

Chicago Mayor Richard M. Daley, Chair of the Conference Task Force on Tax Reform, said, “We believe the Panel is dead wrong to propose eliminating deductions for state and local taxes, and limiting mortgage interest.” He added “eliminating the state and local tax deduction would be an unfunded mandate in the extreme. It would force many cities and states to cut back on services or consider tax increases.”

The Panel also recommended eliminating tax-exempt municipal bonds for corporations, which is a huge concern of the Conference and strongly opposed by the Bond Market Association. In a November 3 newsletter article, the association explained that corporations currently “hold well over 30 percent of outstanding tax-exempt bonds, and taking them out of the market would drastically raise the cost to states and localities of financing schools, transportation, hospitals, low income housing and all other infrastructure financed with municipal bonds.”

On a positive note, Daley commended the Panel for recommending a Family Credit and a Saver’s Credit, which the Conference Tax Reform Task Force included in its tax reform recommendations submitted to the President’s Panel last October. “Not only do these proposals make the tax system fairer and simpler for poor and working families, but they demonstrate that we need not cut valuable tax incentives in order to simplify them,” he said.

The Tax Panel recommendations have received a cool reception in the Administration and Congress. Treasury Secretary John Snow said he views the recommendations as a starting point for developing tax reform recommendations to submit to the President by the end of the year. And while Republican leaders of the tax writing committee in Congress did not have much to say about the recommendations, Democrats expressed strong opposition claiming they would favor wealthy investors and hurt ordinary workers.