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Friday, November 9, 2007

Enacting the "mother of all tax reforms"

Congressman Rangel's "mother of all tax reform" bills - H.R. 3970, is an interesting mix of items. It includes repeal of the individual AMT, an increase in the standard deduction, a new individual surtax, a lower corporate tax rate and a 1-year extension of 32 temporary provisions.

What would it take to get major tax reform enacted? I think at least the following:
  • Cooperation: Both the administrative and legislative branches must agree that existing tax law problems can only be remedied through major reform that will likely affect many parts of the existing tax law and most taxpayers. Both branches must be willing to work together to craft and support reform.
  • Purpose: In order to convince policymakers and taxpayers that reform is the right direction, the purpose of the effort must be clear. Leaders of the effort should be able to articulate the reasons why change is needed. Knowing the purpose enables legislators to identify appropriate changes and to verify if they address the problems. The purpose for making major changes must be perceived as meaningful to taxpayers.
  • Resoluteness: Every tax preference has a group that supports it. Thus, every change will have opposition. But, if the change is appropriate given the purpose of reform, legislators must be resolute in pursuing the change; otherwise, the goals for reform will not be achieved.
  • Transition: Taxpayers have made long-term decisions based on existing tax rules. The pain of new rules that alter past plans can be eased by transitioning in new rules if feasible.
  • Making everyone a winner: Taxpayers are more likely to accept the loss of favorable provisions if they see that there are also benefits for them, such as lower tax rates.

How does H.R. 3970 measure up against these elements? How does it measure up against the last real "mother of all tax reforms" - the Tax Reform Act of 1986? For a brief overview, see my article (11/08/07):

Strategy for Major Tax Reform in the AICPA Tax Insider.

What do you think will happen with H.R. 3970?

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