Obama's Panel Recommends Simple Tax Reforms

The President's Economic Recovery Advisory Board released its Report on Tax Reform Options Friday — only eight months late.

The PERAB, headed by former Chairman of the Board of Governors of the Federal Reserve Paul Volcker, was created by President Obama back in early 2009. It was charged with considering ways to simplify the tax system, improve taxpayer compliance with existing laws, and reform the corporate tax. The Board’s report was originally scheduled to be presented to the President by Dec. 4, 2009.

Unlike the earlier tax reform panel created by George W Bush in 2005, which was pretty much given carte blanche to investigate and review all options, the scope of President Obama’s panel was restricted by specific instructions from the White House.

As indicated in the Executive Summary of the report issued by George W. Bush’s panel, the only instruction given by the President was to “recommend options that will make the tax code simpler, fairer and more conducive to economic growth.”

However, according to the preface in Friday’s report, Obama’s Board “was not asked to recommend a major overarching tax reform, such as the 1986 tax reform, the tax plans proposed by the 2005 Tax Reform Panel, or proposals for introducing a value-added tax in addition to or in lieu of the current income tax system... consistent with our limited mandate, we did not evaluate competing proposals for overarching tax reform in this report.”

And more specifically, it “asked to exclude options that would raise taxes for families with incomes less than $250,000 a year.”

The report, which covers the three areas it was formed to investigate — simplification, compliance and the corporate tax — begins with the simple, but obvious, statement that “The tax code is complex.”  It goes on to explain:

“The complexity of the tax code is partly the result of the fact that new provisions have been added one at a time to achieve a particular policy goal, but with inadequate attention to how they interact with existing provisions. This results in duplicative and overlapping provisions, multiple definitions of concepts like income and dependent children, differences in phase outs, and differences in the timing of expiring provisions. Between 1987 and 2009, the instruction booklets sent to taxpayers for the Form 1040 increased in length from 14 pages to 44 pages of text. The tax code has become more complex and more unstable over the last two decades in part because legislators have increasingly used targeted tax provisions to achieve social policy objectives normally achieved by spending programs.  There have been more than 15,000 changes to the tax code since 1986, and a current JCT pamphlet lists 42 pages of expiring provisions.”

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