WASHINGTON -- A presidential advisory commission recommended Tuesday that the deduction for state... Panel Unveils Plans To Rev

WASHINGTON -- A presidential advisory commission recommended Tuesday that the deduction for state and local taxes be eliminated and two other popular tax breaks -- for mortgage interest and employer-provided health benefits -- be curtailed as part of a sweeping simplification of the income tax code.

The proposals, which face a long and rocky road before anything like them can become law, also would reduce tax rates and would abolish the alternative minimum tax, which was designed to make the wealthy pay more taxes but is snaring millions of upper-middle-class taxpayers.

The nine-member President's Advisory Panel on Federal Tax Reform unanimously submitted its report to Treasury Secretary John W. Snow in a brief ceremony.

"Now it's up to us . . . to use the report as a starting place for the recommendations we'll give to the president," Snow said. He said he hoped to have a proposal on President Bush's desk by the end of the year.

But any legislation that would emerge from the commission's proposals faces a problematic future in Congress. The panel's report immediately came under attack from both ends of the political spectrum.

House Minority Leader Nancy Pelosi, D-Calif., called the commission a "Trojan horse -- using so-called simplification to cut taxes for the wealthy while increasing taxes for middle-class families."

From the other direction, Sen. Jim DeMint, R-S.C., a member of the Joint Economic Committee, said the recommendations were "small and quite complicated, and that's exactly what we're trying to get away from. . . . We need comprehensive reform that will make America the best place in the world to invest and do business."

The panel proposed two plans that differ primarily in their treatment of corporate taxes. Under the more ambitious Plan B, business profits would be taxed at a flat 30 percent, and businesses could deduct the entire cost of new plants and equipment in the year they were purchased.

The two plans would differ slightly for individuals, the result in part of Bush's requirement that any new tax system raise as much money as the current one. Former Sen. Connie Mack, R-Fla., the panel's chairman, said the plans would be revenue-neutral over their first 10 years, although he offered no such claim for shorter or longer periods.

The panel also said about twice as many taxpayers would pay less than would pay more under the new system. Winners and losers would be about equally distributed along the income spectrum in the first year of the new tax code, but by the 10th year, the winners would be disproportionately concentrated in the low-income brackets.

Both plans would reduce today's six tax brackets of rates ranging from 10 percent to 35 percent. Plan A, which the panel called the simplified income tax plan, would divide taxpayers into four brackets with rates of 15 percent to 33 percent; Plan B, or the growth and investment tax plan, would have three brackets of 15 percent, 25 percent and 30 percent.

But in their treatment of deductions, the two plans are virtually identical. Most controversially, they would convert the deduction for home mortgage interest to a credit: Instead of deducting interest payments from taxable income, taxpayers would subtract 15 percent of the interest payments from their taxes owed -- the equivalent of the deduction for someone in the 15 percent bracket.

"It's not fair to pile a bigger tax load on the backs of middle-class homeowners in the San Fernando Valley in order to preserve tax breaks President Bush has given to the wealthiest Americans," Rep. Brad Sherman, D-Calif., said in a statement.

The exclusion of employer health benefits from taxable income would be limited to the average employer cost -- now about $5,000 for an individual policy and $11,500 for a family. For the first time, the exclusion would be available to those who buy their own insurance.

It is on the business side that the plans differ most sharply. For large businesses, today's eight brackets, with a final tax rate of 35 percent, would be collapsed into one -- 31.5 percent under Plan A and 30 percent under Plan B. Small businesses would be taxed at individual rates (Plan A) or 30 percent (Plan B).

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