WASHINGTON – The Bush administration is eyeing an overhaul of the tax code that would drastically cut, if not eliminate, taxes on savings and investment, but is unlikely to try to replace the existing tax code with a single flat income tax rate or a national sales tax, according to several sources familiar with ongoing tax deliberations.
During his re-election campaign, President Bush piqued interest among conservatives and liberals alike when he said replacing the income tax with a national sales tax was “an interesting idea.” Just after the election, he signaled that tax policy would be a centerpiece of his domestic agenda, reiterating his pledge to name a bipartisan panel to draft a fundamental tax reform proposal. That sent conservatives scurrying into either the flat tax or sales tax camp to muster political momentum.
But before the tax panel is even named, administration officials have begun dialing back expectations that they will move to scrap the current graduated income tax for another system.
Instead the administration plans to push major amendments that would shield interest, dividends and capitals gains from taxation, expand tax breaks for business investment and take other steps intended to simplify the system and encourage economic growth, according to several people who are advising the White House or are familiar with the deliberations.
The changes are meant to be revenue-neutral. To pay for them, the administration is considering eliminating the deduction of state and local taxes on federal income tax returns and scrapping the business tax deduction for employer-provided health insurance, the advisers said.
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