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Tax Reform Abandoned in State of the Union Address

2 min readBy: Andrew Chamberlain

One of the more notable omissions from the President’s 2006 State of the Union address was taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. reform.

In the 5,400-word address, the phrase does not appear once. The closest was “tax relief” which appears three times. But as we’ve noted many times before, tax reform is not the same as tax relief—it’s about making the tax system more efficient regardless of the overall tax burden. In fact poorly designed tax relief—the phrase “tax creditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly. ” appears once in the speech—can actually make tax reform more difficult, not easier.

Not surprisingly, members of the President’s Advisory Panel on Federal Tax Reform are not happy. Panel member John Breaux was the first to speak out against the President’s abandonment of federal tax reform yesterday. From Forbes:

John Breaux, vice chairman of a presidentially appointed panel on tax overhaul, said Wednesday he is disappointed that President Bush has not pressed lawmakers to simplify tax laws.

One day after Bush outlined his priorities for the year in his State of the Union address, Breaux said the commission’s report seems to have disappeared.

“Must be in a closet somewhere, on a shelf somewhere,” said Breaux, a former Democratic senator from Louisiana. “I am really disappointed.”

The President’s Advisory Panel on Federal Tax Reform recommended last fall that lawmakers scrap most of the tax deductions and credits and replace them with simpler benefits. Bush appointed the commission’s nine members.

Treasury Department spokesman Sean Kevelighan said the agency is reviewing the recommendations and Treasury Secretary John Snow does not want to set an artificial deadline for setting forth the administration’s views.

Tax relief is still very important to the secretary and the administration,” he said. (Full piece here.)

Note the careful choice of words in the last line—tax relief, not tax reform. For more on why federal tax reform is still an important policy goal, see our recent work here.