A Simple Plan?

     The presidents bipartisan tax panel delivered a complicated proposal on November 1 that has been criticized and even denounced by members of both political parties. But that hasnt stopped the media from embracing it as a sweeping simplification and a vastly simplified tax system.

     The panel offered two plans, both of which would kill the unpopular Alternative Minimum Tax but beyond that, they only switch around the winners and losers in the game. Tax brackets, breaks and credits would be changed, but the fundamental income tax system would remain. The panel rejected ideas for major reform, such as a flat-rate tax that would be the same for all, or a sales tax that would do away with income tax entirely.

     Instead of explaining how the current tax code affects Americans or investigating ways to improve it, the media have primarily used the opportunity to fuel class warfare and scare homeowners into thinking their deductions are going away.

The Tax Panel used this illustration from Marina Sagona
to show how "simple" its new plans would be.

The Least Important is the Most-Covered

     Even though only 35 percent of Americans itemize their deductions, which could include deducting interest paid on a home mortgage, reporters hyped the homeowners deduction as one of the pillars of the American income tax system, as CNNs Casey Wian said on the October 14 Lou Dobbs Tonight, and a mainstay of middle-class tax returns, as CBSs Susan McGinnis put it on the November 2 CBS Morning News.

     CBSs Bob Orr praised the mortgage deduction on the CBS Evening News November 1, the day the panel released its report. Orr said, Its helped make the American Dream more affordable, and has been so off-limits to reformers its been called the third rail of tax politics, until now. The presidents tax reform panel wants to scrap the break on home mortgage interest.

     Orrs claim that a break for mortgage interest would be scrapped was only partially correct. Both of the panels recommended plans would replace the deduction with a 15-percent tax credit for mortgage holders across the board, which would benefit those who dont itemize deductions. Kevin Hassett, director of economic policy studies at the American Enterprise Institute, pointed out in a November 7 article that more than 70 percent of filers didnt benefit from the mortgage deduction in 2002.

     In fact, Hassett said, these changes would significantly reduce the cost of housing for the majority of Americans, since most taxpayers dont receive any mortgage deduction benefits.

     But those facts didnt stop CNNs Daryn Kagan and Gerri Willis on November 7 from emphasizing the very big deal of the proposal to deep six the mortgage interest deduction. Willis said people were really concerned, to which Kagan replied, Yes, understandably. Thats everyones big chunk I mean, most peoples biggest chunk there. Willis responded: The biggest deduction and the biggest gift from Uncle Sam that you get.

     Some journalists took the grim projections even further. CNNs Lou Dobbs said on the October 14 Lou Dobbs Tonight that its a change that would seriously injure the finances of most American homeowners. In his November 1 report, CBSs Orr said: But critics warn house prices would collapse across the country, costing all homeowners billions.

     Hassett also answered that assertion in his article, saying the panels plan avoids exposing the market to a calamitous price decline.

     Business & Media Institute adviser Dan Mitchell, the McKenna Senior Fellow in Political Economy at The Heritage Foundation, said the home interest deduction was probably one of the least important components of the panels proposal. He added that the media have done a sloppy job explaining theres going to be a credit replacing it in the panels recommendations.

Some Losers, We Like
     Overall, Mitchell said, the presidents panel dodged the fights that have to be fought if we want a better tax system for the country.

     The panel was clearly trying to play the class warfare game of not wanting to give the rich a tax cut, Mitchell said, explaining that the panel was likely trying to avoid criticism from the media and from Democrats.

     Class warfare was the order of the day for the crew at CNNs Daybreak, who took taxing the rich for granted on their November 2 show. Carrie Lee explained that the home mortgage cap for tax benefits would be lowered from $1 million to a more average home price in the panels proposal. That caught Carol Costellos ear: when you said million-dollar homes, I said OK, Costello said. But then you said $212,000-homes to 400. Thats the middle class. Lee replied, Exactly. Exactly.

     Deflating their idea that the middle class would suffer disproportionately, Foxs Special Report with Brit Hume included an interview with tax panel chairman and former Sen. Connie Mack (R-Fla.) on November 1. Mack pointed out that less than 5 percent of the mortgages in the country are above that cap. Less than 5 percent.

     Of course, all the quibbling about home buying and who would have a greater incentive to buy ignored the larger issue: that the government continues to pick winners and losers in the economy. And the panel has attempted to do it merely by shuffling around tax credits to keep any proposal revenue-neutral meaning tax rates wont be lowered.

     What they give you with the left hand they take away with the right, Mitchell said.

Proposals for Real Reform
     Though the tax panels plans are only recommendations made by non-lawmakers, there are several bills currently in Congress proposing variations on the flat tax and the FairTax, a national retail sales tax that would replace the income tax. The FairTax bill in the House is sponsored by Rep. John Linder (R-Ga.) and has 45 House co-sponsors. But in covering the tax panels attempt at reform, the media largely avoided the details of actual legislation on the issue.

     The New York Times reported on July 21 that the panel was considering sweeping alternatives that include a national retail sales tax, a value-added tax and a flat tax that would exclude taxes on interest, dividends and capital gains. But radical changes like those drew scant attention from the panel members

     Media attention to the radical ideas of tax reform has been scant recently as well. CNNs Andy Serwer attempted to raise the issue of a consumption-based tax on the November 5 In the Money, though his guest was Treasury Secretary John Snow, who begged out of Serwers questions because he hadnt yet finalized his report for the president.

Related Links:

Tax Panel Changes Wouldnt Slam Home Prices

Tax Panels Report