Dec. 5 (Bloomberg) -- President George W. Bush will delay a major push for revamping the tax code because administration officials concluded the changes are too tough to sell to the public and lawmakers, two people familiar with the matter said.

Bush instead will spend next year attempting to lay the political groundwork for fundamental changes in 2007 or 2008, the people said, and leave to Congress the task of tackling incremental tax code simplification in 2006, an election year.

The administration is wary of seeing its push to overhaul the tax system fall prey to the same factors that derailed Bush's attempt to restructure the Social Security system this year to include private investment accounts: negative public reaction and a Congress focused on the Iraq war and rebuilding the U.S. Gulf Coast from two hurricanes.

Postponing the tax changes would leave Bush without a focal point for next year's domestic agenda at the same time his Republican Party is attempting to maintain its majorities in the House and Senate. Other initiatives, such as making permanent the income tax cuts enacted during his first term and key parts of his energy plan, also are hanging in balance.

Learning from the battle over Social Security, the president may use the next year to generate public and congressional support for changing the tax code by stressing simplification and fairness, said a Republican who worked on the tax overhaul plans and spoke on the condition of anonymity.

The person and an administration official, who also spoke on the condition of not being identified, confirmed a story published yesterday by Time magazine that major tax changes likely will be put off until 2007 or 2008.

Congressional Appeal

The idea of revamping the tax code still has appeal to some Republicans in the U.S. House.

Greg Nickerson, former tax counsel to House Ways and Means Committee Chairman Bill Thomas, said Congress may pursue some changes to the tax system regardless of the White House's wishes.

``I view it being largely in Congress' hands,'' said Nickerson, a principal at Angus & Nickerson LLC, a Washington- based consulting firm. Nickerson said a top-to-bottom revamping of the tax system would be ``very difficult'' next year, although ``incremental reforms'' are possible.

Thomas, a California Republican, previously said he wanted to craft legislation that would include tax changes to help ease the financial burdens of older Americans. Under House term limit rules, Thomas is due to relinquish his seat as chairman of the Ways and Means Committee at the end of 2006 even if Republicans retain control of the House in next year's elections.

`Important Priority'

``Tax reform is an important priority that House Republicans will strongly consider addressing next year,'' said Ron Bonjean, spokesman for House Speaker Dennis Hastert, an Illinois Republican.

Bush hasn't mentioned tax code changes since his Advisory Panel on Federal Tax Reform issued a 272-page report Nov. 1 recommending two ways to overhaul the tax code. The proposals would reduce or eliminate many popular deductions such as those for mortgage interest and state and local taxes while reducing taxes on investment and abolishing the alternative minimum tax.

The silence stands in contrast to the fanfare with which the president announced the panel's creation in January. Then, Bush introduced panel Chairman Connie Mack, a former Republican Senator, and Vice Chairman John Breaux, a former Democratic Senator, in a ceremony at the White House.

Critical Reviews

While Mack, Breaux and the rest of the nine-member panel argue their recommendations as a whole wouldn't dramatically shift tax burdens, the proposals have been criticized by groups such as the National Association of Realtors, the American Council of Life Insurers and the Bond Market Association, which say tax breaks important to the interests they represent may be at risk.

The biggest flashpoints of the panel's recommendations are proposed changes to mortgage interest deductions. The proposals would restructure housing tax incentives now concentrated among higher-income people. No tax benefit would be permitted for interest on a mortgage of more than $412,000; the cap would be as low as $227,000 in some areas with cheaper housing. Current law allows a deduction for interest paid on mortgages up to $1 million for primary mortgages and $100,000 more for home equity loans.

Surveys and focus groups conducted for the Bush administration on overhauling the tax code found some enthusiasm until details such as altering the mortgage deduction were mentioned and began to draw objections, according to the person who has worked with the administration.

Bigger Changes

Some Republicans in Congress, including former House Majority Leader Tom DeLay of Texas and Senator Jim DeMint of South Carolina, have criticized the panel's work for not concluding a more radical overhaul is necessary. DeMint is proposing a tax code that would raise revenue from a 8.5 percent national sales tax and a 8.5 percent European-style value-added tax on businesses while eliminating income taxes.

Postponing the tax-overhaul proposal until 2007 will give the administration time to build consensus around a plan, said Clinton Stretch, director of tax policy at Deloitte & Touche LLP in New York. Stretch said that while he had not heard about plans to delay the tax changes, he's not surprised.

``They've had a pretty rocky fall on the subject of taxes,'' failing to get a budget with tax cuts approved by Congress, he said. ``To move tax reform, you need to get the Hill and administration moving in the same direction.''

The delay also will help the chances of congressional Republicans running for re-election next year because they won't be forced to defend a proposal that probably would kill popular tax deductions, Stretch said.

Election Strategy

Candidates can campaign on the general idea of a tax-system overhaul, saying Republicans would ensure ``a simpler, lower, more fair tax system,'' he said. ``It leaves the Democrats to come up with their own tax proposal or be seen as defending the status quo.''

Democrats such as Representative Rahm Emanuel of Illinois, Representative Steny Hoyer of Maryland and Senator Ron Wyden of Oregon have issued proposals to overhaul the tax code this year. They have also been critical of the tax panel's recommendations.

To contact the reporters on this story: Richard Keil in Washington at dkeil@bloomberg.net; Ryan J. Donmoyer in Washington at rdonmoyer@bloomberg.net

Last Updated: December 5, 2005 00:07 EST