Tax reform tops TEI's fall advocacy agenda: comments also submitted to the MTC, IRS Chief Counsel, and IRS Oversight Board.

• Position: Multistate Tax Commission,

"U.S. companies are increasingly forced to build facilities overseas, not merely because that is where our customers are, but because the economic and tax environments are often friendlier," TEI President David L. Bernard told the Senate Committee on Finance on September 20. Testifying on options for reform of the U.S. business tax system, Mr. Bernard urged Congress to strive "to create a tax environment that allows U.S. companies to compete around the world while retaining research, manufacturing, and jobs at home." America's foreign trading partners, he added, are not shy in vying for new plants, research facilities, and distribution centers.

In his oral testimony, the Institute's president outlined four principles that should guide efforts to reform the tax law:

* U.S. Business Does Not Operate in a Closed System. Citing Sub-part and the foreign tax credit regime, Mr. Bernard stated that "[t]he current system places American companies at a competitive disadvantage.

* The U.S. Tax Rate Must Be Competitive. While the United States was "running in place," he explained, "our European trading partners made rate reductions the rule of the day. From 1986 to 1996, the average corporate rate for the 25 countries of the European Union dropped more than 10 percentage points."

* The Tax System Should Not Pick "Winners" and "Losers." Acknowledging that some incentives such as those for research and education have widespread support, Mr. Bernard told the congressional committee that a growing consensus favors lower rates and a broader tax base to reduce complexity, ease tax administration, and minimize the government's role in picking "winners" and "losers."

* The Tax System Must Be Simpler. "Achieving and maintaining an effective balance between fairness and simplicity is not easy. At one extreme, fairness, that is to say, treating similarly situated taxpayers in the same way, demands tax rules to be complex. At the other, simplicity calls out for 'rough justice.'"

"Stated simply," Mr. Bernard concluded, "the more complex the Code, the greater the likelihood for taxpayers to confront interpretative issues and questions that, if not addressed, will spawn opportunities for lawful tax avoidance. Simplifying the Code will also reduce the heavy proxy tax of recordkeeping that can impede routine, day-to-day business transactions."

TEI's written statement is reprinted in this issue, beginning on page 390.

MTC Uniformity Proposal

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