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PRESIDENT TALKS SECOND-TERM TAX POLICY

November 05, 2004

President Bush discussed tax policy for his second term in yesterday's press conference. Let's go to the transcript:

   Q Mr. President, as you look at your 
   second term domestic priorities, I 
   wonder if you could talk a little bit 
   about how you see the sequence of 
   action on issues beyond Social 
   Security -- tax reform, education. And
   if you could expand a little bit for 
   us on the principles that you want to 
   underpin your tax reform proposal -- 
   do you want it to be revenue neutral? 
   What kinds of things do you want to 
   accomplish through that process?

   THE PRESIDENT: I appreciate that. I 
   was anticipating this question; that, 
   what is the first thing you're going 
   to do? When it comes it legislation, 
   it just doesn't work that way, 
   particularly when you've laid out a 
   comprehensive agenda. And part of that
   comprehensive agenda is tax 
   simplification.

   The -- first of all, a principle would
   be revenue neutral. If I'm going to --
   if there was a need to raise taxes, 
   I'd say, let's have a tax bill that 
   raises taxes, as opposed to let's 
   simply the tax code and sneak a tax 
   increase on the people. It's just not 
   my style. I don't believe we need to 
   raise taxes. I've said that to the 
   American people. And so the 
   simplification would be the goal.

   Now, secondly, that obviously, that 
   it rewards risk and doesn't -- it 
   doesn't have unnecessary penalties in 
   it. But the main thing is that it 
   would be viewed as fair, that it would
   be a fair system, that it wouldn't be 
   complicated, that there's a -- kind of 
   that loopholes wouldn't be there for 
   special interests, that the code 
   itself be viewed and deemed as a very 
   fair way to encourage people to invest
   and save and achieve certain fiscal 
   objectives in our country, as well.

   One of the interesting debates will be,
   of course, in the course of 
   simplification, will there be 
   incentives in the code: charitable 
   giving, of course, and mortgage 
   deductions are very important. As 
   governor of Texas, when I -- some time
   I think I was asked about 
   simplification, I always noted how 
   important it was for certain 
   incentives to be built into the tax 
   code, and that will be an interesting 
   part of the debate. 

                                           (Emphasis added)

Now, it's dangerous to read a Presidential press conference transcript like a 1970s issue of Pravda, looking for clues to policy changes. Still, the President said he was anticipating the tax question, so we can assume that his answer provides clues to administration tax policy thinking.

The last paragraph above is very intriguing. The President didn't say "we will preserve the charitable and home mortgage interest deductions." He said that the deductions are "important" and will be "an interesting part of the debate." Yet he also said in the same sentence that "there will be incentives in the code."

We read this as supporting our thoughts yesterday of a system looking more like the AMT - which allows charitable and mortgage interest decuctions, but few others.

We also read the verbiage about "encouraging people to invest and save" as telegraphing a revival of the Lifetime Savings Account and related Retirement Savings Account proposals.

Still, by saying the deductions for charity and home mortgage interest will be "part of the debate," the President leaves them on the table - he hasn't ruled out a more radical tax proposal that makes these deductions go away, such as a sales tax or more radical flat tax. Is that just a gesture to some of his more ant-income tax supporters, or a real openness to radical reform? We suspect just a gesture, but we can't be sure.

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