Tax reform: sidelined, but not forgotten ... your held needed.

• Author: Boyle, Michael P.
• Position: President's Page

The release of the Bush Administration's budget on February 6 confirmed that 2006 will not be the year of tax reform in the United States. Following the President's State of the Union Message (where the topic barely rated a mention), this was hardly a surprise, but it remains disappointing for a couple of reasons. First, regardless of whether you approve of its range of prescriptions for change, the President's Advisory Panel on Federal Tax Reform--which issued its report last November--did an excellent job of documenting the structural and other flaws in the Nation's tax laws. Second, as more and more countries take action to reduce their corporate tax rates (most recently, Spain), the U.S. system becomes less and less competitive. To be sure, tax reform cannot be all about reducing the corporate tax rate; if nothing else, history teaches that rate reductions are often accompanied by "base broadeners" whose effect--especially in terms of compliance costs--may dwarf the benefit of the rate cut. Nevertheless, there is a growing consensus that corporate tax rate reductions should be a significant part of the mix.

Four Principles of Tax Reform

Based on the State of the Union and Budget, the Administration has other tax priorities this year, most significantly, making the individual income tax rates permanent. As a broad-based group of business taxpayers, TEI has historically not taken a position on provisions affecting the taxation of individuals (other than in our role as a representative of employers). That does not mean, however, that we are--or should be--oblivious to how individual rates or other provisions affecting individuals reverberate through the tax system and the economy and, indeed, constrain Congress's options for the future. Thus, in addressing this topic last fall, the Institute identified four overarching principles that we believe should guide the tax reform process.

The first is simplicity and administrability of the system. The current Internal Revenue Code is much and properly maligned for its complexity and the drag that the cost and "distraction" of compliance places on business. To be sure, the tax system that ultimately emerges from tax reform may not be simple, but it can be simpler than the current system. TEI remains committed to pursuing this often elusive goal.

The second principle is competitiveness. In a global economy, the U.S. tax system should promote rather than hinder the competitiveness of U.S...