What I've learned: transparency, taxes, and the push for a better tax system.

• Author: Olson, Pamela F.

First, I have to congratulate TEI on the selection of the southwestern desert motif for this conference given the transparency theme: You can't hide much in the shadow of a cactus.

Of course, it's more than just the cactus that ties with the theme. There is also the time of year. It's summer in the southwestern desert and that means the heat is on. And the heat is on for corporate America as well. This is, of course, nothing new. To many people, corporate America has long filled the bill as "the fellow behind the tree" in Russell Long's refrain, "Don't tax me, don't tax thee, tax the fellow behind the tree." Another version of Long's refrain ends with "tax the corporation across the sea," a formulation particularly appropriate today. In addition to being a deep tax pocket, that faceless fellow behind the tree is the all-purpose scapegoat.

The United States is not the only country in which corporations fall into disfavor from time to time. England's legislative response to the bursting of the South Sea bubble three centuries back, the Bubble Act of 1721, was a ban on the founding of joint-stock companies without a royal charter--a provision that slowed the development of British industry. More than a century passed before the Bubble Act was undone.

The heat is on for corporate America, and the question is how you, as officers of your companies, should respond. One view would be that the current climate is just another swing of the pendulum. It has swung back in the past. It will swing back again. Recall the anti-corporate sentiments of the late-1970s--if you're old enough to remember! If you believe the pendulum will soon swing back, then your goal is probably a minimal response. Change, of course, is costly. If you conclude the need for change is short term, then your best bet may be minimizing the cost.

There are a number of factors, however, that suggest the return swing of the pendulum will be a while in coming and that, when the pendulum swings, it may not move all that far. Indeed, aside from the institutional breakdowns fueling the wild swing of the '90s, I believe the return swings of the pendulum have been getting shorter with each passing cycle.

Meanwhile, the scandals of the past few years mean that the swing away from the '90s lionization of corporate America has been particularly strong. It will be sometime before the public forgets the bursting of the high-tech bubble, corporate accounting scandals, or lost retirement savings. Add to that stories of corporate inversions, assertions of "Benedict Arnold companies," outsourcing, government contract scandals, cover ups, sharp dealing at mutual fund companies, continuing coverage of the disparity between CEO and worker pay, and you have a recipe for something like road rage against corporate America.

At a conference a couple of months ago, a corporate products liability litigator described the danger of taking a case with a corporate defendant to trial before a jury because of the difficulty of seating a fair-minded jury. Recent events have triggered strong emotions, and it may be sometime before the emotions subside. Until they do, those emotions will affect the corporate landscape.

Other factors are at work shaping the corporate landscape. I'd like to talk about them, and the leadership role I believe corporate America must take if we are to advance to a system that better fosters America's global competitiveness. I put the factors shaping the corporate landscape in five categories: opacity, politics, the federal budget, global competition, and IRS competence.

Opacity

First, opacity. We live in a world that grows increasingly complex, particularly when it comes to financial and economic interrelations. While the world grows more complex, the level of financial and economic literacy declines, with inadequate help from our educational institutions and little to no help from the media. Recent articles in USA Today (the country's most widely read newspaper) and The Economist (a British magazine) illustrate the problem with the U.S. media. Both featured front-page (cover in the case of The Economist) stories on trade. USA Today's article addressed people's opinions about trade and its adverse effects on the U.S. economy. It reported the opinions expressed as if they represented the facts. Real facts did not otherwise enter the story. The Economist, by contrast, ran a report on the facts regarding international trade, noting the disparity between the facts and American's opinions

While the world grows ever more complex, we layer unnecessary complexity on top of it. Case in point: the federal income tax, a system too complex for any one person to fully comprehend. That complexity must be considered in the context of the average American's tax literacy.

A few weeks ago I was in a coffee shop across the street from the Treasury Department. The customer in front of me ordered a cup of coffee, and the cashier told him the price was $5.87. Now this was not a gourmet coffee shop. The customer told her that was impossible because he had only gotten a cup of coffee. The cashier looked at the cash register, then turned back to him, and repeated that it was $5.87. When he protested that a cup of coffee cost less than $2.00, the cashier responded, "Well, there's tax."

Before you blame the school system in our nation's capital for that exchange, you should know that a former congressional leader's college-educated son equated his IRS refund check with having paid no income tax--to the dismay of his tax cut-favoring father. That is in contrast to the sibling of one of my former Treasury colleagues who knew she had paid tax and wanted the tax "returned" so she filed a tax "return." She was quite annoyed when the IRS declined to "return" her tax.

So now that we have taken the measure of our tax literacy, it should not surprise you to learn that the American public believes Robert McIntyre of Citizens for Tax Justice when he asserts that corporations are lying when they report one income figure to their shareholders and another to the IRS. Surely Robert McIntyre, whose organization purports to be brimming with tax expertise, must know that the Financial Accounting Standards Board (FASB i and Congress each write their own rules for calculating income and that the two sets of rules produce different results. Nonetheless, the complexity of the system, coupled with limited tax literacy, allow him to get away with statements he ought to know are false.

The OECD defines transparency in a tax system as certainty about what the tax rules are and equal application to all taxpayers--that is to say, the opposite of a system in which taxpayers negotiate their tax bills. In the United States, we have a tax...