Greenspan Says Hybrid Tax System Best Reform Route
38 minutes ago
By Tim Ahmann
news.yahoo.com
WASHINGTON (Reuters) - Scrapping the income tax for a tax on spending would give the U.S. economy the most bang for the buck but stiff opposition means a combination is the best approach for reform, Federal Reserve Chairman Alan Greenspan said on Thursday.
Lending his voice to President Bush's call for a tax code overhaul, Greenspan backed the goal of simplifying the system and said any revamp should broaden the revenue base and lower tax rates as a way to boost the economy's potential.
The influential Fed chief, testifying to a panel Bush has set up to mull tax code changes, said a move away from the current income tax to a tax on consumption would be the best way to promote economic growth.
He counseled the panel, however, not to "try for purity" because the opposition to a wholesale shift was too great.
"At the moment we have a somewhat mixed system," Greenspan said, noting current provisions that encourage saving essentially place a heavier tax burden on spending.
"I would suspect that probably that may be the best route to go," he added.
Greenspan's suggestion dovetails with the view expressed by the White House Council of Economic Advisers in a report last month. The CEA said incremental change is a better approach than the more drastic shifts, such as switching to a national sales tax or "flat" income tax rate, some conservatives want.
Democrats say consumption taxes are more likely to place an onerous burden on America's poor, who do not have the luxury of squirreling away hard-earned money.
Greenspan said, however, there were ways a consumption tax system could be made progressive so that the wealthy continued to shoulder more of a tax burden.
"Probably the simplest way is to exclude certain items from the tax which tend to be disproportionately consumed in a lower bracket," he said.
GRADUAL SHIFT
Many analysts say the Bush administration has effectively moved to a more consumption-based system over recent years by lowering marginal tax rates, cutting taxes on capital gains and dividends, and pushing for greater saving incentives.
But Bush has made a tax revamp one of his top second-term goals. He formed the tax panel to offer recommendations to the Treasury Department by July 31 on ways to simplify and make the tax code more conducive to economic growth. He has also said he wants to retain a progressive system.
The Treasury Department is expected to distill the panel's proposals and forward ideas to Bush by the end of the year.
Greenspan backed the main aim of the effort, saying a simpler tax code could help the economy.
Since the last overhaul in 1986, the Fed chief said, "the tax code has drifted back to be overly complicated and burdened by higher marginal rates and by many special provisions that have undesirably narrowed the tax base."
"A simpler tax code would reduce the considerable resources devoted to complying with current tax laws, and the freed-up resources could be used for more productive purposes," he said. "Thus, greater simplicity would, in and of itself, engender a better use of resources."
Greenspan also said a tax overhaul could help lay a firmer foundation for the retirement of the baby boom generation by increasing national saving and enhancing work incentives.
"The tax system has the potential to contribute importantly to those goals, and, at a minimum, tax reform should not hinder the achievement of those objectives," he said. |
