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Last Updated: Tuesday, 1 November 2005, 17:56 GMT
Radical US tax reforms proposed
President George W. Bush
President Bush is hoping tax reform will prove popular
A US panel commissioned by President George W Bush has proposed the most sweeping reforms for 20 years of the US's hugely complicated tax system.

The panel advises lowering the minimum rate of income tax and scrapping a swathe of popular tax breaks.

Without radical changes the existing tax code would become "more confusing and unfair", it warned.

Tax reform was one of President Bush's key campaign pledges last year.

Too complicated

The current system, which has not been fundamentally reviewed since 1986, is widely seen as being too complicated and bureaucratic.

The nine-member panel, headed by former Republican Senator Connie Mack, has recommended a wholesale redrafting of the tax code for both individuals and businesses.

The effort to reform the tax code is noble in its purpose but it requires political willpower
Presidential Advisory Panel on Federal Tax Reform

It has put forward two alternative plans for consideration by the Bush administration, both of which would leave 75% of people paying income tax at the lowest rate of 15%.

But the proposals would scrap a host of popular tax breaks enjoyed by millions of middle class Americans, such as mortgage tax relief and tax breaks on private medical insurance.

The proposed scrapping of mortgage interest relief was immediately criticised, with the National Association of Realtors - the US's lobby for property dealers - saying it would have a "devastating effect" on the housing market and economic growth.

Politically unpalatable

The panel acknowledged that some of its proposals would be politically unpopular.

Houses being built in Ohio
Estate agents are unhappy with some of the proposals

"The effort to reform the tax code is noble in its purpose but it requires political willpower," it noted in a letter to US Treasury Secretary John Snow.

"Many stand waiting to defend their breaks, deductions and loopholes and to defeat our efforts."

The panel argued that wholesale changes were needed to promote a savings culture and ensure that more taxpayers entitled to benefits actually received them.

Recommendations include taxing all investment income at 15% and making dividends on company shares exempt from tax.

Revenue neutral

However, the panel rejected the controversial idea of introducing consumption taxes such as a value-added tax or retail sales tax.

President Bush has insisted that any changes must be revenue-neutral while preserving the progressive nature of the tax system, whereby higher-income earners pay more than those on lower salaries.

President Bush is expected to outline his proposed approach to tax reform in his next State of the Union address in January.

Any proposals would have to be approved by Congress.

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