Early tax reform?

W&M Chairman Rep. Bill Thomas suggested, on
CNN's "Capital Gang" talking heads show, that he is working on Soc.
Sec. & tax reform in a combined package.

Don't know if it clarifies anything all that much but here is the transcript of that CNN program segment for reference:

http://archives.cnn.com/TRANSCRIPTS/0412/11/cg.01.html

SHIELDS: Welcome back to the second half of THE CAPITAL GANG.

Our newsmaker of the week is Republican Congressman Bill Thomas of California. As Chairman of the House Ways and Mean Committee he has jurisdiction over the domestic programs emphasized by President Bush in his second term, Social Security and tax reform.

Our own Al Hunt sat down with Chairman Thomas earlier this week.

(BEGIN VIDEOTAPE)

HUNT: Chairman Thomas, Social Security or tax reform, which comes first?

REP. BILL THOMAS (R) WAYS AND MEANS CMTE. CHAIR: I don't know that it has to be "or" and I don't know that saying that we're going to do both means one has to come before the other. It's possible in the legislative process to be considering both (UNINTELLIGIBLE).

HUNT: So, you could take them up in the Ways and Means Committee simultaneously?

THOMAS: Virtually simultaneously, yes, because actually if you examine the two issues they tend to complement each other to a certain extent.

HUNT: Well, let's talk about Social Security first. Has the White House told you what specific Social Security proposals in the broad sense that they're going to send up to you?

THOMAS: No, and I don't know that they actually have them yet but they will.

HUNT: Do you have in your own mind essentially what you'd like to see?

THOMAS: I have an idea of what we can do. One of the things that you have to appreciate is that my job is to make law and other people can put out wish lists and they can create ideal models. What I want to do is actually put a significant adjustment to Social Security solving the financial problem over the next 75 years on the president's desk for his signature.

HUNT: And giving individuals the right what's called sometimes partial privatization to be able to take a percentage of that and invest it themselves?

THOMAS: Well, you sometimes call it partial privatization.

HUNT: You don't like that term.

THOMAS: It's not that I don't like it. It's not accurate. It's a pejorative term which is going to make it very difficult for us to come together in a bipartisan way.

HUNT: Whatever we call it, there are going to be transition costs. I think everyone agrees with that, anywhere from $1 billion to $2 billion. How do you pay for that?

THOMAS: Al, you're thinking too narrowly. What you've already done is accepted an end result and assumed that there was only one way to get there. I have some ideas, which don't necessarily require the kind of pain or heavy lifting. They are clearly adjustments in the system but there are a lot of options available to us.

HUNT: When you say that don't involve the pain or heavy lifting that would suggest that you would disagree with our former colleague Senator Lindsey Graham, a big Social Security reform proponent who says, look, we can't finance anything through borrowing. We have to do it with higher taxes in the short term for the longer term gain.

THOMAS: I don't necessarily say that that's what you have to do either and obviously if you're looking at trying to make law you may have to do a combination of things, which allow people to accept on the margin certain things they wouldn't accept if that was the primary way you funded it. We probably need to make adjustments to get back to what the program was supposed to be in the first place.

HUNT: Why do we need tax reform?

THOMAS: We need tax reform because we have a very complicated code and I'll be the first to admit I've help complicate it in the short run. But because we have to constantly compare ourselves to others in the world, what we need to do, everyone is talking about the borrowing we have to do because of the deficit.

We, as a nation, don't save in comparison to most other industrialized countries. We need incentives to save. We need incentives to invest. We've done that partially with the reduction of the tax on dividends and capital gains.

Individuals need money. Consumer demand is what keeps this economy going. They need the cash to do it as well. The government needs revenue to run the system but it shouldn't be gotten from the taxpayers in the most painful way possible and the most complicated. You can get the money to run the system with a simpler system and allow our corporations to compete overseas but you got to change the tax code to do it. HUNT: Which direction would you like to move, flat tax, sales tax, consumption tax and would you like to see any change be a substitute for the income tax or a supplement?

THOMAS: Everyone says they want a simpler system. They also want a fairer system. When you examine it really in terms of the fundamentals, simpler means don't tax me, tax someone else. Fairer means don't tax me, tax someone else.

The clear problem of the alternative minimum tax as it now approaches $1 trillion problem more importantly it involves average taxpayers who were never intended to be hit and it needs to be addressed. That alone is $1 trillion problem.

So, you need to raise revenue to readjust the system even in a revenue neutral structure. So, we need to change the tax code. I believe you can significantly move toward the kinds of tax structures you indicated under the current system.

(END VIDEOTAPE)

SHIELDS: Al Hunt, did you get the impression from Bill Thomas he's on the same track with President Bush and tracking with him on these big issues?

HUNT: Yes, Mark, because both want to get something done and both are flexible. I don't know if he can do it but the Bill Thomas notion of doing Social Security reform and tax reform simultaneously is stunning. It's just staggering.

And I disagree with some of what Chairman Thomas produces, as we've noted on this show before but just as this administration lacks an economic heavyweight they are very, very fortunate to have Bill Thomas, who is one of the most able legislators I've ever known.

NOVAK: Al, it was a very good interview but I still would like to know what's going on inside Bill Thomas' brain. The way I interpreted what he said a lot of the things he was saying about improving our position in international trade, U.S. position in international trade, improvement -- the fact that you need to appeal to the consumer and to the saver all kind of points to me to a consumption tax.

But the really fascinating thing is how you would integrate a tax reform with the Social Security reform and that could be one of the most important pieces of legislation in my time in Washington.

SHIELDS: Margaret Carlson.

CARLSON: You know, he said there'd be no heavy lifting, not as much pain or heavy lifting as you were suggesting but he used the word adjustments four times euphemistically. And there is no way to do it without these adjustments that have to be -- to Social Security which have to be new taxes, borrowing or cuts in benefits.

SHIELDS: Well, I think you probably put your finger on the principal problem with the Social Security reform, Margaret, as you so frequently do.

You are right, Geez, the chairman is keeping his cards very close to his vest ...... as is the administration.

However, his indication that we can have a simpler, fairer and more internationally competitive system makes me think that he is leaning toward a consumption tax of some kind. I just hope that he doesn't try to reinvent the wheel here. What we DON'T need is another pol developing his own proposal. Tax reformers are fragmented enough as it is.

Tax reformers are fragmented enough as it is.

Indeed!!!!!

Thanks for the transcript, geez. I had not seen it. As I said before, I think this is a very significant event in that it IMPROVES the chances of real tax reform getting done. I have quite a bit of confidence in Thomas' good faith in achieving the objectives of the Fair Tax. He knows that cannot be done with smoke and mirrors; it must be real and substantive reform. The trillion dollar problem with the AMT plus the SS shortfall are very big reasons something must be done. I think Thomas can use those "problems" as crowbars to get the tax reform objectives accomplished. And I think Thomas is smart enough to know when the legislative package does more harm than good, which is very important when these giant political deals get put together.

This is my representative and I'm beginning to wonder about him. I will be contacting him about this.