Big Business could be deeply splintered if Bush pushes sweeping tax reform

[Bush_Eats_Beef]

How Tax Reform Adds Up
Two proposals would play out in dramatically different ways for business



http://www.businessweek.com/magazine/content/05_47/b3960102.htm

Now Washington is at it again, with aides to President George W. Bush hinting that rewriting the tax code may be his key goal for 2006. But this time, business' outlook isn't so clear. The President's Advisory Panel on Federal Tax Reform has proposed two ways to clean up the code, and the impact on companies could vary widely. As a result, Big Business could be deeply splintered if the President pushes sweeping reform. To help sort the winners from the losers, BusinessWeek asked accountants Ernst & Young LLP to crunch the numbers. Their analysis -- the first of its kind -- shows how the changes would play out for hypothetical companies.

Either system would mark a sharp change. Under today's code, industry-specific tax breaks create wide differences between the tax return of, say, a carmaker and a software developer. The new plans propose to wipe out 40 of those targeted breaks. Under those plans, what a business makes would matter less than where it makes and sells its products and how it finances itself.

For some industries, reform could cut taxes but hurt business. Take homebuilders and real estate agents, who are up in arms about the panel's proposal to curb the mortgage interest deduction. If that change drives down home prices, the housing industry won't be satisfied even if its own tax bill shrinks. Under both plans, corporate tax rates would fall from today's top 35%. The new income tax would peg the rate at 31.5%; the consumption tax, 30%. Both would also change the way income from foreign operations is taxed, largely exempting revenues from foreign sales.

[endarkenment]

1. Eliminating the mortgage and state tax deductions are

as dead in the water as any tax proposal could possibly be.