Despite this fiscal reality, a flat tax, NST or VAT is “too radical and will run into a mountain of opposition,” Watson says. “Every sentence in the Internal Revenue Code has a constituent typically backed by a powerful lobbyist. Radical reform is nearly impossible.”
A more viable proposal would be to further tinker with the current system, Watson maintains. “I think we’ll see proposals to further shield interest, dividends and capital gains from taxation and eliminate the alternative minimum tax,” he predicts. He sees reform paralleling the 1986 Tax Reform Act—broadening the tax base by eliminating deductions and lowering tax rates. “This will be very favorable to most investments—particularly those that generate interest and/or dividends,” he adds.
The administration may also make moderate proposals such as permanently eliminating the estate tax or reducing taxes on gifts, which would have a substantial impact on upper income taxpayers by eliminating their current need for trusts, tax shelters and estate planning tools—and for the financial services professionals who provide such tools.
While Watson and a host of others may question the political viability of such radical proposals as a VAT or an NST, Bush has said that tax reform is an essential task and one that includes the permanent elimination of the estate tax—a radical proposal in itself. While his offhand remark about a national sales tax being an interesting idea may be a sop to his party’s conservative wing, it does signal his willingness to entertain new ideas.
The president’s bipartisan commission on tax reform will present its fresh—perhaps even radical—ideas in July. Additional Information
 Alternative Agony
Michael Verdon is a freelance writer and frequent contributor to Worth. michael.verdon@verizon.net
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