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TAX REFORM? IT LOOKS LIKE I'LL STILL HAVE A JOB

October 19, 2005

A tax practitioner who opposes the devil of tax complexity is a bit like the preacher who struggles agains the forces of evil: we fight on the side of the angels, but Satan is good for business.

The President's tax reform panel is settling on its final recommendations, and it looks like business will still be ok.

My initial thoughts: the panel has many good and sensible recommendations that, taken together, would go far to improve the tax system. But not far enough.

My biggest disappointment is that the proposals wouldn't significantly lower rates. Lawmakers aren't going to fight to cap the mortgage interest deduction if the payoff is merely elimination of the alternative minimum tax and a 2% reduction in top rates. My hopes for rate reduction may be unrealistic. Still, the last big tax reform lowered the top rate from 50% to 28%. Reducing the top rate from 35% to 33% isn't the same thing, and I don't think that tax reform will work without a significant rate reduction. High rates create an irrestible motiviation to carve out loopholes, leading to higher rates, and more loopholes, etc., and you end up where we are today.

I would like to say more, but I will be at meetings today and unable to post much until late this afternoon. In the meantime you can check out the links below for details on the plan. Tax prof Daniel Shaviro has some thoughts already. No doubt the TaxProf Blog and Dr. Maule will chime in.

The New York Times has a good summary of the proposals. There is also coverage at Tax Analysts free site.

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