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Stand Back: This Lame Duck Is Ready To Charge

If you are not a fan of President George W. Bush, here is one small piece of good news: Once he is sworn in this month, he will be a lame duck.

If you are a fan of the president, here is a bigger piece of good news: President Bush commences his second term with a beefed-up Republican congressional majority whose key members may be more committed to the president's policies than is the president.

Years before Mr. Bush took office, some Republicans in Congress were proposing that we convert the income tax system to a flat tax, that we abolish the Internal Revenue Service, or even that we replace the income tax with a national sales or value-added tax. Some Republicans called for repeal of the estate tax, which they rebranded as the “death tax.” To many tax professionals in the 1990s, these sounded like the rantings of a lunatic fringe.

Not anymore. President Bush has expressed interest in, or outright support of, all of these ideas. Federal estate taxes already are scheduled to be repealed, for just one year, in 2010. Congress is certain to revisit this issue before then. As a practical matter, that will happen before Bush's term expires, and probably before the next congressional elections, because GOP leaders already in a strong legislative position are not likely to gamble on election outcomes in 2006 and 2008.

Extending the income tax rate cuts of recent years, eliminating rather than reducing taxes on corporate dividends, reducing or eliminating corporate income taxes, and overhauling or abolishing the Alternative Minimum Tax all are ideas that could receive serious consideration in the next few years.

But we have to pay for the government somehow. The dollar's steep decline in the last two years shows that the world is not likely to finance a profligate America forever. So a shift to a consumption-based tax, possibly including a sales tax, has entered the realm of the possible, most likely in addition to (rather than in place of) the income tax.

Two complicating factors are national security and Social Security. Foreign events could displace the domestic political agenda during President Bush's second term much as 9/11 displaced parts of the Bush agenda during his first. And this president seems intent on being the first since Ronald Reagan to address seriously the way Americans pay for their retirement.

Social Security may be the notorious third rail of American politics, but a lame duck can be a pretty good sacrificial lamb. The oldest baby boomers will begin collecting government retirement checks in 2008. Republican leaders who want to hold on to the White House in that year's election probably would love to see the departing president conclude the inevitable battle over the program's future before then.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s book, Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 1, “Looking Ahead When Youth Is Behind Us” and Chapter 4, “The Family Business."

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