The Senate Finance Committee (SFC) held a July 18 hearing entitled “Comprehensive Tax Reform: Prospects and Challenges.” All four witnesses who testified before the committee had held the position of assistant secretary of Treasury for tax policy in prior administrations. According to Chairman Orrin G. Hatch, R-Utah, each witness has front-line tax experience that would help lawmakers address the shortcomings of the tax code, as well as the political divisions that could hamper tax reform efforts.
“What’s needed is bipartisan tax reform that focuses on progressivity, helping the middle class, cleaning out flagrant tax loopholes, fiscal responsibility, and giving everybody in America the chance to get ahead,” ranking member Ron Wyden, D-Ore., said during opening statements. “Tax reform that drives economic growth by putting money in the pockets of wage-earning Americans only works if tax reform is lasting and bipartisan,” he added.
Hatch, too, spoke of his hopes for bipartisan tax reform. “Indeed, the negative impact of the status quo falls on Republican and Democratic voters alike. So, we should all be willing to work toward solutions,” Hatch said.
All four witnesses encouraged Congress to act now on tax reform. “There is a window of opportunity now, and it is important to act before that window shuts,” Eric Solomon testified.
Jonathan Talisman, in his testimony, cautioned taxwriters against letting policy debates and differences impede tax reform efforts, and said that lawmakers should not worry about solving all problems at once.” Incremental progress will be a significant accomplishment,” he testified. In particular, debates over more fundamental tax reforms should not delay or preclude meaningful reforms to improve the current code that will provide relief to individuals and help stabilize the global tax environment and improve competitiveness for businesses operating in the U.S., he added.
Pamela F. Olson, currently U.S. deputy tax leader of PricewaterhouseCoopers LLP (PwC) and leader of PwC’s Washington National Tax Services practice, also provided lawmakers with advice on approaching tax reform. “To the maximum extent possible, Congress should resist the urge to write narrow targeted rules in favor of broadly applicable provisions,” she testified.
Winners and Losers
Most tax reform proposals have winners and losers, so to speak. The notion is well-known among taxwriters, as Olson noted in her testimony. “As the members of this committee are well aware, revenue-neutral tax reform produces vocal losers and largely silent winners,” she said. “The base broadening that permits further rate reduction on a revenue-neutral basis is unpopular with those whose base is broadened, but the greater the rate reduction, the more palatable the base broadening will be, and the greater the benefit will be for the U.S. economy because taxes will have a reduced effect on decisions to work, save and invest,” she added.
According to Mark Mazur, currently director at the Urban-Brookings Tax Policy Center, a key challenge of business tax reform is that, by removing (as seen with a consumption tax) or lowering the corporate tax rate, such reform could potentially remove a significant revenue source for the federal government. The corporate income tax raises between $300 billiion and $400 billion a year, Mazur noted, adding that it is an important revenue source for the U.S. Treasury.” Maintaining this revenue source while addressing its most glaring inefficiencies is a key challenge for business tax reform,” Mazur said.
Olson testified, however, that many economists “across the political spectrum” have concluded that consumption-based taxes are a more efficient way of raising revenue than the corporate income tax. According to Olson, the House GOP tax reform blueprint represents a repeal of the corporate income tax and a replacement with a domestic consumption tax.
“As I look out into the future, we have a rising difference between what we expect to be collecting in revenues, and what we expect to be spending, and we have to find some way in addition to making tax reform easier, to close that gap, and a consumption tax seems to me to be something that is a very viable alternative and should be carefully considered by the committee,” Olson said.
By Jessica Jeane, Wolters Kluwer News Staff
SFC Press Release: Hatch Statement at Finance Hearing Regarding Comprehensive Tax Reform: Prospects and Challenges
SFC Press Release: Wyden Statement at Finance Committee Hearing on Tax Reform
Statement of Jonathan Talisman, Former Treasury Assistant Secretary For Tax Policy
Statement of Pamela F. Olson, Former Treasury Assistant Secretary For Tax Policy
Testimony of Eric Solomon, Former Treasury Assistant Secretary For Tax Policy
Testimony of Mark J. Mazur, Robert C. Pozen Director, Urban Brookings Tax Policy Center, and Former Treasury Assistant Secretary For Tax Policy