Josephine Hearn writes in the Tuesday issue of The Hill that President Bush's pledge to fundamentally reform America's tax code--perhaps with a flat tax or a national sales tax--might have hit a snag even before it was laid out to Congress. In "Groups cool on tax reform", Hearn writes that Bush might be lacking one key ally in his push for change: business.

Business groups are voicing concern that President Bush’s proposed reform of the tax code will do some of them more harm than good.

Despite a flurry of interest in a sweeping overhaul of the code, such as with a flat tax or a national sales tax, business organizations have yet to voice support for a fundamental change.

Many industries have well-established preferences built into the tax code that a broad reform effort could jeopardize. The real-estate industry and nonprofit groups, for instance, have benefited from tax deductions for mortgage interest and for charitable donations.

Although Hearn does not mention this, business will also be generally skeptical about any tax reform after their experience during the Reagan administration. As Jeffrey Birnbaum and Alan Murray so thoroughly and interestingly lay out in Showdown at Gucci Gulch, the 1986 Tax Reform Act--while reducing personal income taxes to only two brackets and lowering each group--raised taxes on most businesses and got rid of many loopholes in order to stay revenue-neutral.

If Bush does indeed want to cut the top rates or even abolish the progressive income tax, given the country's current abysmal fiscal situation, one would tend to think that he would need to be revenue-neutral. This would mean getting rid of precious loopholes for businesses and perhaps even raising marginal rates on corporate taxes, something I cannot imagine industry accepting at this juncture.

Bush has another thing going against him. In the period leading up to the passage of the 1986 bill, Reagan had bipartisan support in the form of Democratic House Ways and Means Chairman Dan Rostenkowski and Republican Senate Finance Chairman Bob Packwood to ensure that the bill would get the requisite votes in each house so that it could indeed pass.

Bush does not have the same benefit of a truly bipartisan Congress. Although the President could certainly get the measure through the Republican House, if the Democrats are not brought on board, their coalition with moderate/fiscal hawk Republicans (Chafee, Snowe, Collins, McCain, Specter [?], Gregg [?], Sununu [?]) could block the GOP from 60 in the Senate, thus effectively killing the measure.

The wrangling over Bush's effort will certainly be one for the history books no matter how it plays out. As I have said before, I highly recommend Showdown at Gucci Gulch as requisite reading on the subject so you can have a better understanding of the ramifications of any attempt to alter the federal tax code, even in the smallest degree.