US Senate Finance Chief Vows Vigorous Tax Reform Effort this Year

On Tuesday the Senate Finance Committee Chairman said they will attempt to overhaul the US tax code this year. However, Max Baucus also warned that it will not be completed "quickly." I think I could have told you that…

From iMarketNews.com:

"I expect this to take a little time," Baucus said in comments during a Finance Committee hearing on the airport and airway trust fund.

Baucus said his panel will hold a "lot of hearings" on tax reform, examining the AMT, individual and corporate tax policy as well as the international competitive consequences of the U.S. tax code.

He said tax reform efforts must also include the nearly $1 trillion in annual tax expenditures--which some describe as spending through the tax code.

"It's just too complex," Baucus said of the U.S. tax code.

The Senate Finance Committee, under Democratic leadership, began holding hearings on tax reform last year. The House Ways and Means Committee, under Republican leadership, launched tax reform hearings last month.

President Obama in his State of the Union address called for tax reform cooperation between Congress and the administration.

Continue reading here...

Taxes on Overseas Income Take Center Stage at House Hearing

From the Wall Street Journal:

U.S. multinationals pressed their case for exempting all foreign profits from U.S. tax at a Thursday House hearing, as a congressional debate over corporate taxes got off to a contentious start.

Procter & Gamble Co. Chief Executive Robert McDonald, testifying on behalf of the trade group Business Roundtable, put the foreign profits issue front and center before the House Ways and Means Committee. He argued that U.S. companies’ competitors based in Japan and the United Kingdom have systems that exempt most profits earned abroad.

“We’re not talking about a tax break. What we’re talking about is paying the same as our foreign-based competition,” McDonald said.

But Rep. Lloyd Doggett (D., Tex.) called the idea of switching to a territorial tax system, or one that exempts profits earned outside U.S. borders, “a sure-fire way to continue the export of more American jobs.”

McDonald also said companies have asked Treasury Secretary Tim Geithner to abandon the position of the administration of President Barack Obama that a corporate rate reduction shouldn’t result in less revenue overall for the government.

McDonald said business groups asked Geithner “to take that off the table for now.” He said lawmakers and the administration should instead focus on an overhaul that is “fiscally responsible,” but that would result in a net tax cut to corporations.

Read more here

House of Representatives Holds Tax Reform Hearing Today

Is this a start to the changes we all know are so desperately needed? According to WaysAndMeans.house.gov, the committee will host the first in a series of hearings on fundamental tax reform today. The focus of the hearing is listed below.

The hearing will examine the economic and administrative burdens imposed by the current structure of the Federal income tax. It will explore the cost of complexity borne by American families, the cost of a corporate tax system that is increasingly out-of-step with the rest of the world, and the broader cost to the U.S. economy of a tax system that fails to maximize job creation and impedes economic growth.

The following witnesses are expected to testify:

• The Honorable Nina E. Olson, National Taxpayer Advocate

• Robert A. McDonald, Chairman of the Board, President and Chief Executive Officer, The Procter & Gamble Company

• Warren S. Hudak, President, Hudak & Company, LLC

• Kevin A. Hassett, Ph.D., Senior Fellow & Director of Economic Policy Studies, American Enterprise Institute

• Martin A. Sullivan, Ph.D., Contributing Editor, Tax Analysts

Momentum Builds for Corporate Tax Overhaul

From the Wall Street Journal:

The White House and congressional Republicans are moving from different directions toward a consensus that the U.S. corporate tax code needs a fundamental overhaul, a goal high on corporate leaders' agenda.

Specific proposals for retooling the complex corporate-tax system aren't on the table and the debate over the issue is sure to be lengthy and difficult. But President Barack Obama and Republican congressional leaders are separately sounding the same broad theme that corporate tax rates should be lower.

"Tax reform could be a significant boost to our competitiveness," Rep. Eric Cantor (R., Va.), the new House majority leader, said this week. "I'm hopeful and expect the president to put some action behind his statements."

The movement on the corporate-tax issue comes as Mr. Obama and his aides are pushing a broad effort to repair relations with U.S. business leaders. Since Democrats lost control of the House in November, Mr. Obama has met with chief executives to solicit their ideas on job growth, negotiated a free-trade pact with South Korea widely supported by business, and begun searching for figures with strong ties to the business world to take top White House jobs.

The White House is also advancing a rapprochement with the U.S. Chamber of Commerce, the capital's biggest, richest business lobby, which has clashed repeatedly with the administration on a range of issues. On Wednesday, the White House said Mr. Obama would address members of the chamber for the first time at the group's Washington headquarters on Feb. 7.

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Incoming House Majority Leader Considers Tax Overhaul for Bipartisanship

From the Wall Street Journal:

A top House Republican leader on Tuesday identified an effort to overhaul the country's tax code as a significant policy area that the GOP and Democrats could work together on.

Rep. Eric Cantor (R., Va.), who will become House Majority Leader when Republicans assume control of the House on Wednesday, said changes to the tax code could "be a significant boost to our competitiveness."

He said Republicans would be looking at President Barack Obama's State of the Union Address and subsequent budget request to see what ideas he has in terms of changes to the tax code.

"This tax code has brought on way too much cost in terms of compliance and preparation," Cantor said, at a weekly press conference. "It has put this country and our businesses in a less competitive posture vis a vis the competition."

Cantor declined to mention specific measures Republicans would pursue as part of a drive to increase U.S. competitiveness.

The Virginia Republican's call for bipartisan cooperation on efforts to simplify the tax code echo similar statements Rep. Steny Hoyer (D., Md.), the outgoing House majority leader, made last year.

Hoyer expressed hope last year that the two parties would be able to agree on a significant package of changes to the tax code. He said that he would make it his No. 1 priority in the coming year.

Continue reading at WJS.com...

Tax Reform Won’t Happen in 2011 (or 2012)

Expecting major revisions to the tax code in 2011, or 2012? Well don't hold your breath. According to Howard Gleckman from TaxPolicyCenter.com, tax reform isn't likely to happen any time soon.

Here are his main reasons:

Obama isn’t on board. The President could have used the tax reform plans offered by his own fiscal commission or the Bipartisan Policy Center as an opportunity to jumpstart the debate. But he was decidedly cool, calling only for a national conversation on taxes. As Ronald Reagan showed with the 1986 Tax Reform Act, a major rewrite of the revenue code requires a full-court press by the White House. To get a bill moving, Obama would have to send a complete reform plan to Congress and keep up the pressure for passage. There is no sign he’s ready to do that.

Hill Republicans are not on board. Incoming Ways & Means Committee Chairman Dave Camp (R-MI) says tax reform will be one of his priorities, and that’s a good thing. But speaker-to-be John Boehner (R-OH) has little interest in supporting real reform. In the Senate, Democrat Ron Wyden (D-OR) still has his rewrite, but his GOP cosponsor, Judd Gregg, has retired and Republicans are not exactly lining up to take his place. Republicans would surely back further rate reductions, but they have no interest in cutting tax subsidies—the hard part of reform. It is easy enough for a pol to embrace the concept of repealing loopholes. It isn’t so easy to actually cut the mortgage interest deduction. And does anyone seriously think the GOP would give Obama an historic victory on tax reform on the eve of a presidential election campaign?

Hill Democrats are not on board either. After their battering in this year’s elections, Democrats want only one thing between now and November, 2012—a plummeting unemployment rate. And they don’t see how a nasty protracted debate over tax reform will create many jobs. Besides, these days Dems are just as enamored of targeted tax subsidies as Republicans.

There is no agreement on how much money the new tax code should raise. The ’86 Act passed, in part, because it produced the same amount of money as the tax code it replaced. But in the face of a $1 trillion-plus deficit and growing fiscal pressures down the road, the next reform would have to raise more revenues. Democrats, of course, will be fine with that. But the idea was red meat for Republicans even before the 2010 elections. The growing clout of the anti-tax activists who make up much of the tea party movement will make it even tougher for GOP lawmakers to budge on new revenues.

Continue reading at TaxPolicyCenter.com...

Obama's Debt Panel Releases Three Tax Reform Options

Earlier today President Obama's National Commission on Fiscal Responsibility and Reform released a draft of their report on options for tax reform. The final report is due to be issued on the first of December. You can download a PDF of the report here or check out the following summary of the three options courtesy of the TaxProf.

Option 1: The Zero Plan

• Consolidate the tax code into three individual rates and one corporate rate
• Eliminate the AMT, Pease, and PEP
• Eliminate all $1.1 trillion of tax expenditures
• Dedicate a portion of savings to deficit reduction and apply the rest to reduce all marginal tax rates
• Add back in any desired tax expenditures, and pay for them by increasing one or all of the rates from their zero expenditure low

Option 2: Wyden-Gregg Style Reform Individual Tax Reform

• Repeal AMT, PEP, and Pease
• Establish 3 rates – 15%, 25% and 35%
• Triple standard deduction to $30,000 ($15,000 for individuals)
• Repeal state & local tax deduction, cafeteria plans, and miscellaneous itemized deductions
• Limit mortgage deduction to exclude 2nd residences, home equity loans, and mortgages over $500,000
• Limit charitable deduction with floor at 2% of AGI
• Cap income tax exclusion for employer-provided healthcare at the amount of the actuarial value of FEHBP standard option
• Modify and repeal several other tax expenditures
• Dedicate portion of savings to deficit reduction Corporate tax reform * Reduce corporate tax rate to 26%
• Permanently extend the research credit
• Eliminate and modify several business tax expenditures, including:
• Domestic production deduction
• LIFO method of accounting
• Energy tax preferences for the oil and gas industry
• Depreciation rules
• International tax reform including a territorial system

Option 3: Tax Reform Trigger

• Call on Finance and Ways & Means Committees and Treasury to develop and enact comprehensive tax reform by end of 2012
• Put in place across-the-board “haircut” for itemized deductions, employer health exclusion, and general business credits that would take effect in 2013 if reform is not yet enacted
• Haircut would limit proportion of deductions and exclusions individuals could take to around 85% in 2015. Similarly, corporations would only take some proportion of their general business credits
• Set haircut to increase over time until tax reform is enacted

Tax On Wrongful Imprisonment Needs Reform

From Forbes.com:

It is hard to imagine a more terrifying nightmare than being wrongfully convicted and imprisoned. It is comforting that there’s been a dramatic increase in wrongfully convicted persons gaining their freedom, often after a decade or more of wrongful imprisonment. Yet it is appalling that so many lives are destroyed. And more and more cases are being uncovered.

Exonerees may later seek redress from the cities, states and officials whose actions precipitated their wrongful conviction. They may receive payment under federal or state civil rights and compensation statutes or under the common law of false imprisonment. The biggest payouts usually involve prosecutors who have unlawfully buried witnesses and destroyed evidence. See $18 Million to Man Wrongly Imprisoned, Wrongly Convicted Man Gets $7.95, Million Settlement, and City to Pay $9.9 Million Over Man’s Imprisonment.

The changes in an exoneree’s life from this physical and mental ordeal are incalculable. But if an exoneree eventually recovers damages, are they taxable? The Internal Revenue Code exempts payments received on account of personal physical injuries and physical sickness. That means settlements for auto accidents are tax-free. Yet appallingly, some exonerees have been forced to pay taxes on their awards, ostensibly because there is nothing “physical” about being locked up.

Plainly, even if never beaten, assaulted or mistreated in prison, the victim suffers a deprivation of liberty that is manifestly physical. In the 1950s, the IRS issued a series of rulings according tax-free status for payments to survivors of Nazi persecution, U.S. prisoners of war, and Japanese-American internees. Then, in 2007 the Internal Revenue Service abruptly cancelled these rulings.

Is Tax Overhaul Possible?

I think we can all agree that our tax system is a mess. The rules, regulations, requirements, and loopholes involved in taxes are overwhelming. So much so, the head of the IRS has admitted that he does not do his own taxes, stating the rules are simply too complex. If Doug Shulman can’t figure it all out, what hope do the rest of us have?

Which leads us to tax reform. The way our system is set up, any tax reform must be introduced as a bill through Congress – to refresh your memory . Unfortunately, in an increasingly partisan, polarized political climate, getting Democrats and Republicans to agree on anything is nearly impossible.

That being said, members of Congress are still trying, and I think we can applaud the effort. Democratic Senator Ron Wyden and Republican Senator Judd Gregg have let slip that they are working on a sweeping tax reform bill. Reports indicate that the bill would reduce the standard Form 1040 from 76 lines to a more reasonable 30 lines, and would do away with a large number of tax loopholes that make our tax system so confusing.

Of course, while we all complain about tax complexity, we still clamber after our representatives to provide more tax breaks – via deductions and credits. Add lobbyists and corporate interests into the mix, pushing politicians to create more tax breaks that benefit various industries - for example the housing industry and the First Time Home Buyer’s Credit - and you can see how difficult this can be.

While regular people like you and me know that our tax system is unbelievably complicated and leading lawmakers agree that the tax code is unfair and obsolete, large changes can be incredibly difficult to push through the legislative process. Are our political leaders willing to risk alienating corporate donors and voters in order to fix our tax system? Backing up a step, would a tax simplification bill be effective?

What would you do to simplify the tax code? Leave me a Facebook message, or Tweet your ideas #taxreform.

(hat tip: NPR)

Obama’s Non- Tax Reform Commission

From TaxVox:

In a month, if White House officials are to be believed, the Obama Administration will unveil the tax reform report of the President’s Economic Recovery Advisory Board. Despite once-high expectations, it is likely to be a waste of everyone’s time.

The Board (the PERAB in Washington-speak) is hardly a bunch of economic lightweights. Chaired by ex-Federal Reserve Chairman Paul Volcker, its members include economist Marty Feldstein, GE CEO Jeff Immelt, venture capitalist John Doerr, former CEA chair Laura Tyson, and other stars of Wall Street, Main Street, academia, and labor. Its chief economist is Austan Goolsbee, a top-notch researcher who has had close ties to President Obama for years.

Yet the reform panel—technically a PERAB subcommittee—is going to produce…a mouse. From its earliest days, the group was forced to work under impossible constraints. Chief among them: Obama’s insistence that no one earning less than $250,000 should pay higher taxes. Exempting more than 95 percent of families and individuals from tax hikes of any kind essentially shut the door on any serious discussion of reform, which inevitably creates winners and, yes, losers.

Once individual taxes were taken off the table, the panel was charged to look at corporate tax reform, enforcement issues, and simplification. But even on those limited topics, the panel will make no recommendations. A few months ago, we were told it would produce a document that looks something like CBO’s revenue options—listing a narrow range of ideas without actually endorsing any of them.

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The White House Wants to Hear YOUR Tax Reform Suggestions

With thousands of taxpayers showing up to protests around the country and a seemingly endless debate on funding for health care reform, the White House is asking for input on tax reform from regular Americans like you and I. Check out the following request that was recently posted to WhiteHouse.gov.

President Obama has asked the President's Economic Recovery Advisory Board (PERAB) to develop options for tax reform. The members of the tax subcommittee are preparing ideas to be considered by the board and would like to give anyone a chance to have input into the process on this important issue. Anyone wanting to share ideas and opinions for consideration by the subcommittee can do so here. The deadline for submissions is October 15th, 2009.

Note: The mandate to the PERAB is NOT to recommend a new tax system. They are to consider ideas on tax simplification, better enforcement of tax law, and reforming corporate taxes and to present the pros and cons of potential tax options. They were instructed not to consider options that involve raising taxes on families making less than $250,000 per year. So be mindful of their constraints when submitting ideas.

In general, the tax subcommittee will post all comments online for others to examine and those suggestions may spur other people's ideas. All statements, including attachments and other supporting materials, received are part of the public record and subject to public disclosure. You should submit only information that you wish to make available publicly. Please do not submit materials exceeding five single-spaced pages of text. If submitting via e-mail, please send to perab@do.treas.gov. Please also include a cover sheet including the submitter's name and organization, type of organization (individual, business, government, non-profit organization, or association), submission date, and contact information.

A New Federal Tax Reform Panel

From Williams Tax Planning Blog:

Obama has appointed Paul Volcker to head a panel that will make recommendations for reforming our nation's tax laws. Volcker is also the head of the President's Economic Recovery Advisory Board.

The advisory panel will consider ways to simplify the tax code and reduce tax evasion, and will make recommendations to the President by December 4th, 2009, according to a White House briefing.

The last time we had any serious consideration for tax reform was in 2005 when President Bush appointed a panel of advisors to come up with simplified tax systems. Those recommendations were never implemented. There is a strong suspicion that recommendations coming out of this new tax reform panel might not fare any better. Rosanne Altshuler, who worked as the chief economist on the 2005 panel, fears that Paul Volcker and his team might be too constrained,

"President Obama has said that no one making less than $250,000 could pay higher taxes under any new reform. That means ninety-five percent of taxpayers can’t pay additional tax, even if it would result in a more efficient system, decrease inequities, or make their lives much simpler. At a time of monster deficits, that pretty much rules out any sensible reforms."

Hundreds protest tax increases at Calif. Capitol

From the MercuryNews.com:

Thousands of sign-waving protesters turned out Wednesday for a tax day rally that included attacks on Gov. Arnold Schwarzenegger and California lawmakers by a congressman and a son of former President Ronald Reagan.

"I knew Ronald Reagan. Ronald Reagan was not only a friend, but he was my father. And Arnold, you are no Ronald Reagan," talk show host Michael Reagan said to cheers from a crowd that spilled out from the front of the Capitol.

Reagan and other speakers urged the crowd to reject Proposition 1A. The measure on the May 19 special election ballot would create a state spending cap and strengthen a rainy day fund while extending sales and income tax increases the Legislature passed earlier this year to help close a $42 billion budget deficit.

The budget package also included $15 billion in cuts to state programs and hundreds of millions of dollars in corporate tax breaks.

"My father would say to you, 'On May 19, go out and please win one again for the Gipper,'" Reagan said.

Reagan's speech relied on a selective reading of history. Before he became president, Ronald Reagan served two terms as California governor in the 1960s and 1970s. One of his first acts upon taking office was to increase taxes.

Two Republican state lawmakers who voted for this year's tax increases even invoked the image of Ronald Reagan to defend their decision, saying he campaigned against higher taxes but then raised them when confronted with political reality.

On the Senate floor in February, Republican state Sen. Abel Maldonado of Santa Maria displayed a 1972 photograph showing Reagan signing a bill to increase California taxes.

A spokesman for Schwarzenegger, Aaron McLear, defended Proposition 1A, saying it was part of the Republican governor's attempt to fix "broken government."

Rep. Tom McClintock, a Republican congressman whose district runs from Sacramento's northeastern suburbs to the Nevada and Oregon borders, also criticized Proposition 1A and urged the crowd to support an attempt to recall Assemblyman Anthony Adams, R-Hesperia.

Adams was among the handful of Republican legislators who supported the February tax increases.

"We are going to actively and methodically go after those politicians" who backed the $14 billion in tax hikes, McClintock said.

A spokeswoman for Adams did not immediately respond to a request for comment from The Associated Press.

McClintock, 52, has held taxpayer-funded jobs for most of his adult life. He was an aide to a state senator from 1980 to 1982, when he won his first race for the state Assembly. He lost campaigns for Congress in 1992 and state controller in 1994 but was re-elected to the Assembly in 1996. He moved to the state Senate in 2000 and was elected to Congress in 2008.

An Inconvenient Tax

Life is my Movie Entertainment is working on a new film titled An Inconvenient Tax to take a look at the complexity of the federal tax system. Below is the synopsis posted on their website, and for more information you can check out the movie’s page on IMDB and MySpace.

“Ask any of the millions of tax paying Americans on April 15th if the current tax system has problems and you'll get a clear answer. Complexity, inequities and international pressures top the ever-growing list of concerns. The last major tax reform in the United States occurred in 1986. Since this bipartisan effort to simplify the tax code, over 16,000 changes have been made, creating an inflating bubble of complexity that is ready to pop. This looming issue coupled with the expiration of the Bush Tax cuts in 2010 has economists, congressmen and concerned Americans scrambling to figure out a direction for immediate reform.

Should Congress try to repair the tax code's inequities by moving towards a broader based income tax similar to that of 1986 or should it pursue a consumption-based system such as a flat tax, VAT or national retail sales tax?

In addition, can America's schizophrenic desire for lower taxes and increased social programs be reconciled?

An Inconvenient Tax explores the answers to these questions and more through interviews with world-renowned economists, U.S. congressmen, and average citizens across the nation. The pursuit of a better tax code requires a search for the nations identity. As Joseph Schumpeter wrote, "The spirit of a people, its cultural level, its social structure, the deeds its policy may prepare – all of this and more is written in its fiscal history..."

In order to shed light on America's current tax dilemmas, the film will look at the history of taxation in America as well as current tax-systems in other parts of the world. It will also follow a middle-class small business owner as he tries to pursue the American dream. As the effects of taxation touch every aspect of his life, the film will pose both the benefits and dangers of change. The next direction for U.S. tax policy will be decided soon, and it is imperative that the country learn from its past and design a system that will benefit its future.”