President Names Tax Advisory Panel

President Bush on Friday named a nine-member panel to prepare options for overhauling the U.S. tax code, a process that could rival Social Security restructuring as the dominant domestic policy issue of Bush’s second term.

Bush appointed former Sens. Connie Mack (R-Fla.) and John B. Breaux (D-La.) to lead the commission. He gave the panel seven months to present its proposals to Treasury Secretary John W. Snow, who will distill the findings into a final set of recommendations by year’s end.

Administration officials said the panel would weigh the merits of many restructuring proposals, from modest revisions to the existing income tax system to more radical alternatives, such as flat taxes, sales taxes and value-added taxes.

In an executive order creating the commission, Bush said the panel should offer plans to “simplify” the tax code in a way that is fair, does not raise or lower the overall tax burden and better promotes “long-run economic growth and job creation.”

He said at least one option should be based on the current system, and the tax code should continue to encourage homeownership and charity.

“I believe this is an essential task for our country,” Bush told reporters following an Oval Office meeting with Mack and Breaux. He added: “I am firm in my desire to get something done.”

Some conservatives see Bush’s overture as a potential opportunity to replace the increasingly complex income tax system with something like a national sales tax. They argue that by taxing consumption, a national sales tax would encourage savings and capital formation, driving economic growth. Critics say a national sales tax would hit low-income people harder than the wealthy.

Some tax specialists are convinced the president has more incremental changes in mind for the tax code, such as creating new incentives for savings and investment within the current system.

Mack, a former Senate Republican Conference chairman who served alongside Breaux on the tax-writing Senate Finance Committee, said the panel would be open to “various ideas and alternatives” for improving the tax system.

“We have great latitude,” Mack told reporters outside the White House.

“There is no end result that he is trying to lead us to, other than the fact he said this has got to be simple.”

In addition to Mack and Breaux, the panel’s members include former Rep. Bill Frenzel (R-Minn.), former Internal Revenue Commissioner Charles O. Rossotti and former Federal Trade Commission member Timothy J. Muris.

Also on the panel are University of Southern California law professor Elizabeth Garrett, Stanford University economist Edward P. Lazear, MIT economist James Michael Poterba and Charles Schwab & Co. chief investment strategist Liz Ann Sonders. Although White House officials characterized the commission’s membership as bipartisan, some administration critics said it appeared only nominally so. Before retiring from the Senate this year, Breaux was considered one of the chamber’s more conservative Democrats. Rossotti was a business executive appointed by former President Clinton to head the IRS. Garrett served as a tax advisor to former U.S. Sen. David Boren of Oklahoma, another conservative Democrat.

“Again, we see a White House looking for so-called recommendations only from those everyone knows will agree with the administration,” said Rep. Charles B. Rangel of New York, the senior Democrat on the House Ways and Means Committee. “That’s not leadership. It’s closed-mindedness.”

Bush has placed tax-code changes at the top of his second-term domestic policy agenda, along with Social Security restructuring, but it remains unclear what kind of tax overhaul he has in mind. Members of the panel said they anticipated recommending several restructuring options instead of one consensus proposal, leaving it to the president and his inner circle to decide on a final plan to present to Congress.

“We have been asked to send forward options -- plural,” said Garrett, director of the USC-Caltech Center for the Study of Law and Politics. “Although it’s my belief and my hope that we’ll be considering consumption-based taxes, we’re also going to be looking at the current income tax and figuring out ways to improve it.”

Although some prominent conservatives are pressing for a radical tax overhaul, Frenzel said he considered it unlikely that Congress would choose to scrap the income tax and replace it something entirely different.

“If we’re serious, we are going to have to do something that the Congress can get its arms around,” said Frenzel, who served on the tax-writing Ways and Means Committee during his 20-year House tenure. “If we get a little too fancy, we may come a cropper.”

The tax panel appeared similar in purpose and structure to a commission appointed by Bush in 2001 to recommend ways to shore up Social Security.

That group’s findings languished for three years but are now the basis of Bush’s push to create private retirement accounts.

Snow, the Treasury secretary, said the tax study was on “a pretty fast timetable” and should produce final proposals for congressional consideration by the end of the year.

“They’re going to go to the country, hold hearings, listen to the American people and come back with a wide range of options for the president,” Snow said in an interview with CNN. “The president has said everything is on the table.”

Economist Bruce Bartlett, a former Treasury official in the Reagan and George H.W. Bush administrations, said he thought the White House was trying to accomplish too much too quickly. “That’s an extraordinarily short period of time,” Bartlett said. “In effect, they’re being asked to write a book in six months.”

Times staff writer Joel Havemann contributed to this report.