Committee for a Responsible Federal Budget

Presidential Panel Releases Tax Reform Report

Aug 27, 2010 | Taxes

Today the President’s Economic Recovery Advisory Board issued a report on tax reform options. The report should encourage and inform a vital discussion on the need for fundamental tax reform and hopefully will broaden the current narrow debate over extending the 2001/2003 tax cuts.

PERAB was created by the president last year “to ensure the availability of independent, nonpartisan information, analysis, and advice as he formulates and implements his plans for economic recovery and enhancing the strength and competitiveness of the Nation’s economy.” It is chaired by former Federal Reserve chairman, and CRFB board member, Paul Volcker.

The report is in response to a request from President Obama to provide options for changing the tax system to achieve three goals: simplifying the tax system, improving taxpayer compliance with existing tax laws, and reforming the corporate tax system. The president stipulated that the options presented could not raise taxes on families earning less than $250,000. The panel took this as meaning that the options taken together had to be revenue neutral for this cohort.

The report does not make specific policy recommendations, but offers a detailed list of options with pros and cons for each. A multitude of options are offered, including simplifying tax filing; raising the standard deduction and reducing itemized deductions; simplifying or eliminating the AMT; broadening the corporate tax base; and eliminating or reducing tax expenditures.

Offering a detailed list and providing pros and cons of each option opens a much-needed conversation on improving the antiquated and inadequate tax code. Focusing on simplification and efficiency, closing the tax gap and corporate tax reform are important and must be part of the conversation. But the dialogue will also have to include broadening the tax base as part of larger efforts to reduce fiscal imbalances.

The section on tax expenditures is particularly insightful, stating,

Many of these provisions distort economic activity, increase the complexity of the tax code, and violate principles that businesses with similar characteristics should be treated equally. Eliminating specific expenditures would thus improve efficiency while simplifying the tax code.

Options discussed are eliminating the domestic production credit; eliminating or reducing accelerated depreciation; and eliminating special rules for employee stock ownership plans. In light of recent remarks from House Republican Leader John Boehner regarding tax expenditures, a genuine opportunity exists for action.

PERAB has provided policymakers with a good reference; now it is time for them to work together to fundamentally improve the tax code.

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