Mon, Nov 08, 2004 - Page 7 News List

Bush aides prepare for tax and social security revamp


US President George W. Bush's aides are preparing the groundwork to move ahead with his plans to overhaul the tax code and Social Security, as Cabinet members await signals from him about who will remain on his second-term team, Republican advisers and officials said.

Bush was spending the weekend at Camp David, and he said Thursday that he would use his time there to begin thinking about personnel decisions. In Washington, administration officials said they were gearing up for what they hoped would be a fast start to the new term, accelerating work on the budget Bush will present in February and beginning to sketch out themes for his Inaugural Address.

Bush has made clear that he wants quick votes next year on issues that had been blocked by Democrats in the Senate, including bills that would limit lawsuit awards against doctors, an issue Bush highlighted consistently on the campaign trail. And to some degree, his legislative strategy will depend on whether he starts the year making a nomination to the Supreme Court, a possibility given the illness of Chief Justice William Rehnquist.

But the administration has yet to settle a number of issues about how to proceed with the most ambitious parts of Bush's domestic agenda -- his call for a simpler tax code and his proposal to add personal investment accounts to Social Security.

A Republican adviser to the White House said there were two distinct strains of thinking within the administration about tax simplification.

One group, which the adviser said included Vice President Dick Cheney, supports throwing out the existing tax system and replacing it with a new one, built around the idea of exempting savings and investment from taxation and effectively levying a tax only on consumption. The new system, in this view, could be either a national sales tax or a single-rate flat income tax that as a practical matter only applies to income that people do not save or invest.

The other group, which the adviser said includes Treasury Secretary John Snow and Andrew Card Jr, the White House chief of staff, prefers an approach styled after what former president Ronald Reagan and Congress did to reshape the tax code in 1986. They want to keep in place the progressive income tax structure, but to reduce rates and offset the foregone revenue by closing loopholes, cutting out special interest tax breaks and eliminating most deductions except those for home mortgage interest and charitable giving.

"That's the debate," said the adviser, who spoke on the condition of anonymity so he would not run afoul of the White House, which prefers to announce policy decisions only after internal differences have been ironed out.

There are similar differences within the administration on how to cover costs of shifting to a system in which workers can invest a part of their Social Security payroll taxes in private retirement accounts.

Creating the new system would divert some of the payroll tax revenue that now goes to paying benefits to current retirees into the private accounts, meaning the government would have to find money from somewhere else to pay the benefits. Estimates range up to US$2 trillion over several decades.

Some officials said one camp within the administration was comfortable with borrowing the money, with the idea that the loan could be paid off over the long run by the savings to the system from increased returns from the investment accounts. But they said other officials, especially some political advisers to the White House, feared that any increase in the national debt or the budget deficit, even if advertised as a step toward improving the nation's fiscal condition in the long run, would run into strong opposition from budget conservatives on Capitol Hill.

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