US Treasury Considering 21st Century Taxation

The Treasury Dept released a report on 7/23/07 on Business Taxation and Global Competitiveness. It precedes a conference they are hosting on 7/26. The report notes several areas in our current income tax that distorts business behavior, increases costs to comply with the system and inefficiently allocates capital.

A few interesting points:

• Removal of special provisions would allow the top corporate rate of 35% to be lowered to 27% and still raise the same amount of revenue.
• Businesses spent about $40 billion in 2004 to comply with the federal tax laws.
• Analysis of business tax rules cannot just look at corporate provisions because in the past 30 years, the number of sole proprietorships, partnerships and S corporations has grown.

I think it is great that Treasury is raising these issues. There are many ways to improve the federal income tax system (as well as the California one) to remove complexity, make taxes less important in business decisions, increase equity, and reduce administrative and compliance costs.

For example, many, if not all preferences, such as the manufacturing deduction (Section 199), should be removed and replaced with a lower tax rate.

For more information on the Treasury report and conference:

http://www.treasury.gov/news/index1.html