By Jeff Carlson, Washington Staff Writer
Senate Finance Committee Chairman Max Baucus (D-Mont.) on April 15, 2008, kicked off a series of hearings on tax reform. Looking at the federal income tax code, Baucus announced plans for future hearings and roundtable sessions to prepare for a comprehensive overhaul of the tax code in 2009.
Most of the panelists testifying before the committee agreed that the longstanding shortcomings in the tax code are compounded by three major imminent issues: the 2010 expiration date for the tax cuts enacted since 2001, the expansion of the alternative minimum tax, and the worldwide trend toward lower corporate tax rates.
But at this point, lawmakers are just listening and a legislative response is far from imminent. "Even in a year where much won't get done legislatively, we can build a framework of knowledge on which to review options and proposals when it's time for tax reform," said Baucus in his opening statement.
The senior tax writer also acknowledged that although significant sections of the tax code expire at the end of 2010, "pretty much nobody wants the law to swing back to the pre-2001 law in its entirety," he said.
His Republican counterpart, ranking member Charles E. Grassley (R-Iowa), was equally contrite. "Let me say that I have no pre-conceived notion of which direction we should go, whether we're talking about a flat tax, national retail sales tax, value-added tax ("VAT") or substantial modification of the current system," he said.
Daniel N. Shaviro, Wayne Perry Professor of Taxation, NYU School of Law, told lawmakers that the most fundamental maxim of tax reform is broadening the base and lowering the rates while holding revenue and distribution constant. "Fundamental tax reform seems almost impossible, but the income tax system is facing enough rising stress points to make doing nothing almost as painful as doing something controversial," said Shaviro. "Of the three main areas for reform effort that I have addressed, base-broadening is possibly the most painful but also potentially with a huge positive payoff for our society."
Michael J. Graetz, Professor of Law, Yale Law School, recommended four steps to achieve true reform: enacting a value added tax, eliminating the income tax for most Americans, lowering the corporate income tax rate to 15 or 20 percent, and replacing the EITC and refundable child tax credits by introducing a payroll adjustment or "smart card" to protect low- and moderate-income workers. "Our nation can no longer afford our broken tax system," said Graetz. "The health of our nation's economy, the cohesion of our society, the future of our nation's children all demand major changes. This will not be an easy task."
Baucus said three additional hearings are already on the Finance Committee calendar and will be developed in consultation with Grassley and members on both sides of the panel. Initial topics will include taxation of individuals, businesses, and multi-national corporations.
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Posted May 15, 2008.
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