Panel hears options on restructuring taxes

WASHINGTON — A presidential commission looking into how to make income taxes fairer and simpler heard pitches Wednesday from experts with ideas about revamping or replacing the current system.

The commission examined plans to base taxes on spending rather than income, which could mean a national sales tax or a European-style value-added tax.

As for transforming the income tax, the commission heard proposals for comprehensive change and minor tinkering.

“Not one person who we encountered as we traveled the country told us that our current tax system was good for America and that we should leave it alone,” said the commission’s chairman, former GOP Sen. Connie Mack of Florida.

After hearing complaints about tax laws, the President’s Advisory Panel on Federal Tax Reform used this meeting to consider ways to replace the system.

Michael Graetz, a Yale Law School professor, offered an outline of how to meld income taxes with a value-added tax. That tax, used widely in Europe, imposes a levy on the increased value of a product at each stage of production.

Under his plan, consumers would see a 13 percent to 14 percent value-added tax appear on their purchases.

Individuals earning less than $50,000 and families making under $100,000 no longer would pay income taxes under such a plan. Those still paying income taxes would get a simplified system and a top tax rate of 25 percent.

“I am very skeptical that you can fix the income tax,” Graetz said.

Federal Reserve Chairman Alan Greenspan has told the commission that he supports some combination of income and consumption taxes as a catalyst for economic growth. Others have warned about the dangers of a poorly designed hybrid.