Federal tax reform report

The President's Economic Recovery Advisory Board (also know as PERAB) yesterday released its report on tax reform options for simplifying the federal tax system, improving taxpayer compliance, and reworking the corporate tax rules.

The Board did have a directive to not consider tax options that would raise taxes for families with incomes less than $250,000 a year. They took this to mean that options “taken together should be revenue neutral for each income class with annual incomes less than $250,000", while considered separately may increase or decrease the tax burden for each group.

For the most part, the Board reviewed options that have been bruited about for the past 20 years.There are good options for tax simplification for individuals and tax compliance.

The report discusses a number of options to streamline the tax code for family credits and incentives, savings and retirement accounts, capital gains, tax filing, small businesses, and the individual alternative minimum tax (AMT).It also looks at simplifying the tax return preparation process by increasing the standard deduction and reducing the benefit of itemized deductions.{Was I not right on in my screed in the spring?—see my April 25th blog post.)

The report reflects the common belief that that largest area of non-compliance is in underreporting income by small businesses and individuals. But the options discussed on small-business bank reporting, withholding for independent contractors, and multiple year audits of small businesses and individuals are new.

In the discussion on corporate and international tax reform, the main theme was that there needed to be comprehensive reform because any one option would be too expensive—mainly for the Treasury.

The question now is what is going to be done with this report? Will the President change his proposals? What effect will it have on his overall tax policy? Will Congress act in accordance with some of the simplifications and tax compliance options? Or, will it be placed on the tall pile of unused reports that recommend reform of the Federal tax code? to be continued...