Congressional Panel Examines Business Tax Reform

By Paul N. Gada, Toolkit Staff Writer, and Jeff Carlson, FFG News Staff Writer

Talk is cheap, but sometimes that’s all we can afford. This certainly applies to any discussion of reforming our tax laws.

On September 20, 2006, members of the business community and federal tax analysts made their case to the Senate Finance Committee for substantial reform of the current business tax policy. Though not much of a shock for most people, these experts conclude that we have a flawed tax system that serves as a drag on economic growth.

Former IRS Commissioner Charles O. Rossotti stated the problem in the simplest of terms: tax complexity continues to get worse every year. Since the adoption of the Tax Reform Act of 1986, Congress has passed 14,400 amendments to the tax code, resulting in greater compliance burdens and approximately $300 billion in tax revenue lost to U.S. coffers annually, in part because of the complexity of the Code.

Rossotti, along with many of the witnesses testifying before the committee, advocated a simpler tax system that would level the playing field among businesses and, in the process, introduce lower statutory rates while raising the same amount of revenue. The former Commissioner argued that lower rates, rather than special preferences, would better serve the business community, but he also urged simpler rules for smaller businesses than for their large counterparts. In addition, he said that the government should reduce or eliminate the double taxation of businesses, but that all business income should be taxed once at the approximately the same rates.

Focusing on taxation of business investments, Treasury Deputy Assistant Secretary for Tax Analysis Dr. Robert Carroll testified that there were a number of different policy avenues for influencing tax on capital treating different types of investment more uniformly, each with its own set of inherent trade-offs. As an example, Carroll offered the choice of allowing faster write-off of investment versus lowering the corporate tax rate.

As Chicagoans say about their baseball teams, there is always next year (and the year after that), though. According to Treasury Secretary John Snow, tax reform could be "very much at the center stage of consciousness of the administration and Congress" in 2007 or 2008.

Meanwhile, without major reform, the IRS is managing to make do with what it’s got. Most recently, the agency has been actively working on improving its effectiveness as a tax collector and narrowing the unpaid tax gap.