Monday, February 8, 2016

Can we move beyond tax cuts to overhaul the tax system?

Debate over extending the Bush tax cuts has overshadowed a recent report by a presidential advisory board on simplifying the tax system and reforming the corporate tax system.

Can we move beyond tax cuts to overhaul the tax system?


We’re barely past Labor Day and I’m already weary of candidates’ campaigning to be more in favor of tax cuts than the other guy.

It’s times like this that I wish some outsiders had gotten together and looked comprehensively at the nation’s tax system and made some solid suggestions for improving it.

Guess what? One such group spent 18 months doing just that, issuing its final recommendations Aug. 27.

The ideas don’t come from some think tank that tilts left, right, or upside down. This was the President’s Economic Recovery Advisory Board, led by former Federal Reserve Chairman Paul Volcker, who’s currently an adviser to President Obama.

The board, which was formed shortly after Obama took office, has members from Big Labor (Richard L. Trumka, president of the AFL-CIO, and Anna Burger, recently retired secretary-treasurer of the SEIU) as well as Big Management (Jeffrey R. Immelt, CEO of General Electric Co., and Jim Owens, CEO of Caterpillar Inc.).

After considering input from dozens of people and institutions, the board released its 118-page report on a Friday afternoon in late August. That timing didn’t bode well for serious examination, and I fear that, like a similar effort by another presidential advisory panel on federal tax reform, in 2005, the ideas raised by this group will dissipate like the humid haze of summer.

With Obama now pushing for various tax breaks, such as tax write-offs for equipment purchases and a permanent research-and-development tax credit, I couldn’t help thinking that, as well-intentioned as the programs may be, they’re steps toward more tax-system complexity.

That’s the opposite of what his panel of advisers has recommended.

By design, its mission was limited in scope. For example, the panel could not consider ideas that would raise taxes on households earning less than $250,000, or suggest radical overhauls, such as enacting a valued-added tax, which is prevalent in Europe.

Obama’s advisory board set these goals: Simplify the tax system, improve taxpayer compliance with existing tax laws, and reform the corporate tax system.

These are worthy goals. After all, there have been more than 15,000 changes to the tax code since 1986, the last time widespread tax reform was enacted. Even with the availability of tax-preparation software, all those changes haven’t made April 15 any easier for us.

According to its final report, the advisory board said that taxpayers and businesses spend 7.6 billion hours and shell out billions of dollars trying to comply with tax-filing requirements. The costs were roughly equivalent to 1 percent of the nation’s gross domestic product, or about $140 billion, in 2008.

What I like about the report (read it at is that it presents various options for changing the status quo and offers the advantages and disadvantages of each approach. So you can see the trade-offs that would need to be made.

What I don’t like about it is there’s no sense of urgency. After reading it, I felt as if Congress would find it easier to do nothing than to implement some of the options that would create winners and losers among different industries and businesses.

While there are no easy fixes in this report, I still prefer its sober evaluation of how to make the tax system more fair to the simplistic sound bites I’ve been hearing on the campaign trail.

Inquirer Columnist
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Mike Armstrong blogs about Philadelphia corporations and business-related topics. Contact him at 215-854-2980. Reach Mike at

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