Can the President's Deficit Commission's Proposals Lead to Corporate Tax Reform?
Corporate tax reform's Moment of Truth revealed.
January 27, 2011
In February 2010, President Obama formed the bipartisan, 18-member National Commission on Fiscal Responsibility and Reform. It was to identify approaches to improve the nation's finances, reach a balanced budget by 2015 and "achieve fiscal sustainability over the long run." A final report was due December 1, 2010 requiring approval of 14 of the 18 Commission members. Monthly hearings were held and testimony was solicited broadly. The Commission co-chairs released their own proposals before the December 1 deadline (November 20, 2010 report). The Moment of Truth report was released on time but the subsequent vote resulted in only 11 of the members approving it though the group included members from both political parties.
While the December 2010 report lacked the requisite votes to be "final," it exists and Congress certainly can consider it along with numerous other reports and suggestions from earlier commissions, taxpayers, practitioners, legislators and others that address national budget and tax system problems and solutions.
The Report included suggestions for significant reform of the income tax. This article summarizes the key concepts in the report as well as the specific recommendations offered for corporate tax reform.
Highlights of the Fiscal Fix
The report describes a six-part plan consisting of spending cuts, as well as budget-and-tax system reforms that intends to reduce the deficit by $3.9 trillion by 2020. The six parts:
Some of the key themes of the report include the following items:
Corporate Tax Reform
The report includes suggestions to reform both the individual and corporate income tax systems. The suggested approach is to do the following by 2012 with appropriate transition rules:
The key features of the corporate tax reform proposals are:
The Report states that additional benefits of base broadening and rate reduction include simplicity, reduced compliance costs, greater equity, a reduced tax gap and economic growth.
Although the Deficit Commission was not able to get at least 14 members to sign onto the report, the authors of the report seem to have succeeded in sending their message that our current fiscal picture has crucial problems that necessitate serious actions now. President Obama has stated that a conversation on tax reform can be started this year (NPR interview; December 10, 2010). Treasury Secretary Geithner met with several CFOs on January 14, 2011 to discuss corporation tax reform (McKinnon, "Progress on Overhaul of Corporate-Tax Rules," The Wall Street Journal, January 15, 2011). On January 20, 2011, the House Ways and Means Committee held the first in a series of hearings on fundamental tax reform.
While these events may tie more to the extension of the 2001/2003 tax cuts than the Deficit Commission report, they all indicate that a call-to-action is underway with positive movement towards corporate tax reform.
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Annette Nellen, CPA, Esq., is a tax professor and director of the MST Program at San José State University. Nellen is an active member of the tax sections of the AICPA, ABA and California State Bar. She chairs the AICPA's Individual Income Taxation Technical Resource Panel. Nellen maintains the 21st Century Taxation website and blog.