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Sunday, August 14, 2011

What is "tax reform"?

Senator Grassley sent a letter to President Obama on August 11 noting some differences in how he thinks President Obama defines "tax reform" and how he defines it. Per Grassley, President Obama's version of tax reform includes:

  • Requiring those who "can afford it" to "pay their fair share."
  • "Closing loopholes, special interest tax breaks and corporate subsidies."

Senator Grassley notes his concerns that current talk about tax loopholes and tax expenditures leaves some to think that all tax expenditures are loopholes. He notes that tax expenditures are rules "intentionally enacted by Congress for certain policy goals." He also notes that "tax reform in a global economy is a serious task."

Well, I think there are good points being made in all of this that need to be funneled into a better aproach to tax reform. This is the point of this 21st Centuty Taxation website and blog - how to effeciently and effectively move tax systems into the 21st century.

While Senator Grassley is correct that tax expenditures were intentionally enacted to serve certain policy goals, they are not subject to regular review so remain even when the policy goal is no longer needed. Also, they often get enacted for the wrong reasons. For example, there usually is no discussion of why certain benefits for those paying for higher education should get some benefits via the tax law rather than through programs established in the Department of Education. Also, where was the discussion on creating a child credit rather than just increasing the dependency exemption or standard deduction?

We need to both modernize our tax system and ensure it meets principles of good tax policy. Applying those principles of the overall tax system and individual provisions can identify where improvements are needed. It is likely that this analysis would lead to reform or even elimination of some tax expenditures (of which there are about 250 in the tax law). Tax system modernization would consider how we live and do business today and what are appropriate tax rules for taxing income and consumption AND how administrative processes can be modernized to make better use of today's technology.

What do you think?

1 comment:

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