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Tuesday, September 14, 2010

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 go.philly.com/perab) 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.
Posted by Mike Armstrong @ 12:12 PM  Permalink | File Under: Politics, Taxes | 3 comments
Comments   
  • 0 like this / 0 don't   •   Posted 2:17 PM, 09/14/2010
    They don't simplify so they can keep playing the shell game.
    — theodotius
  • 0 like this / 0 don't   •   Posted 3:07 PM, 09/14/2010
    Mike: A lot of big names attached to this report and I find it ahrd to believe that any of them actually spent any time on it. Did they particpate on their own dime or was this another payoff for the connected? I tried to read the full report but kept dozing off. The first several pages are a tip-off. Lots of white space. Did taxpayers really pay for the groups first finding: The current tax code is complicated? How much did those of us who still pay taxes fork over for this again? Was there anything in the report on the gigantic and growing cash economy? I didn't see it, but that's where the real money is. The fact that most taxpayers have to pay someone to prepare their returns shpuld be a sufficient indictment of the current system. The report that a significant number of federal employees are seriously delinquent on their taxes tells me that people in high places believe they can beat the system.
    — MBowers
  • 0 like this / 0 don't   •   Posted 8:10 PM, 09/14/2010
    I didn't read all of it, but I looked at enough of the report to favor its general thrust, i.e., simplication of the tax code. Who wouldn't? More fundamentally, I favor the basic goal, reflected in the bipartisan (although initiated by the Reagan Administration) 1986 tax reform law, of broadening the tax base and lowering marginal tax rates. This would provide the least amount of distortions to economic activity. I would, however, favor a little more progressivity than originally reflected in the 1986 law's two rates, something like three tax rates. Any economic activity that Congress wishes to encourage (e.g., housing, R&D) is best handled through the appropriations process rather than the tax code. Unfortunately, Congress seems to like to use the tax code, as well as the appropriations process, for influencing (specific) economic activity.
    — donleonard


3 comments
About Mike Armstrong
Mike Armstrong, a business editor and writer for nearly two decades, is the Inquirer's business columnist and PhillyInc blog editor. Contact Mike via e-mail or at 215-854-2980
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