With the number of congressional hearings on tax reform taking place this year, it seems possible that some part of the reform proposals being aired may eventually become law.
In addition to the
The actual likelihood of tax reform is problematical, according to
"If it means a wholesale or comprehensive package, it is unlikely in the short run. This is partly because, unlike in the 1980s, you have opposite synergy," Pieler continued. "There's a president in office who is absolutely opposed to cutting rates, so almost anything that will be called reform these days will be a revenue-raiser. You could swap things off within a set of exemptions, but that would be just setting interests against each other."
"The cynical view is that putting tax reform on the agenda is a good campaign fundraising move for both sides going into the 2014 and 2016 elections," Pieler added.
"The theory is that if you indicate that every tax preference is in play, people will want to be on your good side. And there's also the legacy argument for both [
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"It could create some opportunities that you might not have anticipated before the scandal hit," Matthews noted. "Although the real movement is from the Republican side, it could open doors for the Democrats to want to address the issues. The complexity of the code opens it up. There's the notion that if you make the system simpler and easy to understand, it might be a plus and help during the election if the public has a negative response to the
As an example of the way momentum could be created, Matthews cited the health care bill passed leading up to the conventions in 1996. "
Similarly, Matthews indicated, both Republicans and Democrats will want to say that they passed legislation that addresses the
Matthews suggested one possibility would be to lower rates significantly but cap the allowable deductions. "It's not entirely clear that this is doable. Rather than having groups fighting for particular deductions and exemptions, simply cap their allowable deductions and let individual taxpayers decide which breaks they want. This might be the most politically feasible way to do it," he said.
In testimony before the
"Today's long-term budget outlook means that we're likely to need higher tax revenues in the future," he said. "And rising inequality means that changes in policy will be increasingly scrutinized for how they affect the progressivity of the tax schedule. But a tax reform that devotes revenues to deficit reduction and retains our progressive system would have much more difficulty achieving other goals – such as lowering tax rates."
Looney agreed that reform will be more difficult today than it was in 1986. "In that reform, tax rates were lowered substantially and the lost revenue was restored by cutting tax breaks, deductions, exclusions, and other so-called tax expenditures. That reform enhanced economic efficiency without increasing the deficit," he explained. "In the 27 years since then, however, the economic context has changed, making such a reform harder to achieve."
"It's obvious that we need to improve the tax system, and we should always be thinking about how we can," said Looney. "It's exciting to see that
In his testimony to the
"There are tradeoffs," he said. "If you ask whether or not there is likely to be tax reform, I would say that there doesn't seem to be a lot of capacity within
Tax reform for businesses must include small businesses and not be limited to simply lowering the corporate tax rate, according to
Harris, who is the president of Padgett Business Services and former chair of the
"Cash accounting allows a business to operate on the simple principle that money received is income, money paid out is an expense, and what's left is profit," he said. "Many small businesses have a hard time understanding why they must pay taxes on money they don't yet have or why they can't currently deduct money they just paid, resulting in a tax liability on money that is not in their bank account. To make matters worse, the business owner is required to keep more records to calculate this liability."
Harris was optimistic that the stage is being set for progress on tax reform and tax simplification. "There are multiple committees in the House talking about tax reform, and the
"There is an undercurrent of activity generated by lawmakers on both sides of the aisle, and it gives hope that tax reform has a real chance," he added.
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