Senate Finance Committee Holds Hearing on Tax Reform

Today, the Senate Finance Committee had its first in a series of hearings for the coming year about reforming our tax code. Senate Finance Committee Chair Max Baucus (D-MT) has said he wants to hold weekly hearings on the subject in an effort to make progress on this issue in the near future. The issue has gotten a fair amount of attention in recent months, with hearings on tax reform also having taken place in the Senate Budget and House Ways and Means Committees.

The witnesses testifying today were all former Assistant Secretaries of the Treasury for Tax Policy: Fred Goldberg (1992, testimony), Jonathan Talisman (2000-2001, testimony), Mark Weinberger (2001-2002, testimony), Pamela Olson (2002-2004, testimony), and Eric Solomon (2006-2009, testimony).

The hearing was entitled, "How Did We Get Here? Changes in the Law and Tax Environment Since the Tax Reform Act of 1986." Chairman Baucus opened the hearing noting that there have been 15,000 changes to the tax code since it was overhauled 25 years ago and he asked the panelists to offer their insights into how and why it has changed and what suggestions they would offer as Congress considers options for reform.

The panelists discussed a wide range of tax issues, including corporate tax reform, tax expenditures, and alternative revenue sources. There was a wide consensus that our corporate tax system needs to be revamped to boost U.S. competitiveness and job creation. Pamela Olson suggested that this should be the first issue to address. While the whole system is in need of reform, she said it will be necessary to take a piecemeal approach rather than trying to revamp the entire system at once.

There was also broad discussion about the efficiencies of a VAT, or consumption tax, as an alternative form of revenue. Panelists stressed that this strategy would require a large-scale campaign to educate the public about its benefits because it is largely unpopular today in the U.S., although it has been successfully employed in Europe.

Tax expenditures also received a fair amount of discussion in this hearing, and rightfully so. The panelists agreed reform was necessary, although Jonathan Talisman argued that these policies have become deeply embedded in our economy and society and must be evaluated based on their merits. Tax expenditure reform played a critical role in the Fiscal Commission's plan in revamping the tax system, recommending that lawmakers wipe the tax code clean while also reducing tax rates--and if lawmakers add tax expenditures back in, they would have to raise marginal tax rates to pay for them. (See CRFB's thoughts on tax expenditures here.)

As it holds more weekly hearings, we hope the Senate, along with policymakers in the House and the administration, can make progress toward meaningful reform to repair our out-dated and inefficient tax system.