tax code

Part I in a series that will examine the congressional super committee and the Low Income Housing Tax Credit program

At several points during the debate over raising the debt ceiling, Washington appeared to be headed towards a “grand compromise”. Such a deal would have mixed broad ranging cuts, including cuts to entitlement programs, with revenue-increasing tax reform. While tax reform is certainly not a novel policy proposal, it is one that has gained traction in recent months as politicians and policy-wonks alike have searched for solutions to the country’s mounting debt-crisis. It is also a policy proposal that has drawn the attention of the affordable housing industry, as industry advocates fret over the future of the Low Income Housing Tax Credit in a world without tax-loopholes. The debt-deal that eventually emerged could hardly be labeled grand, but the possibility for a “grand bargain” including tax-reform remains alive, with responsibility for a deal shifted to the so-called “super committee”.

The call for tax-reform has been mounting for months. In November of 2010, the Bipartisan Policy Center’s Debt Reduction Task Force released a report that suggested, “An end to almost all tax expenditures to offset the costs of the much lower tax rates”. The President’s Economics Recovery Advisory Board released a report in August 2010 which called for, “Eliminating specific expenditures [to] improve efficiency while simplifying the tax code”, and perhaps most notable of the slew of reports, The National Commission on Fiscal Responsibility and Reform (more commonly referred to as the Bowles-Simpson report) called for a comprehensive tax reform that would, “Sharply reduce rates, broaden the base, simplify the tax code, and reduce the deficit by reducing the many ‘tax expenditures’—another name for spending through the tax code.” [click to continue…]

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Watch the hearing live here

Testimony of Fred Goldberg Jr., Former Assistant Secretary of the Treasury for Tax Policy, 1992, United States Department of Treasury, Washington, DC

Key passage:

The fact is that the primary contributors to erosion of the individual tax base reflect our core values as a country: hard work (the ETIC); families (e.g., personal exemptions and the child care credit); thrift (myriad tax-favored savings vehicles); education (an impenetrable array of conflicting credits and deductions); home ownership (deductions for mortgage interest and property taxes); health care (the exclusion for employer- provided health care); and charity (the charitable contribution deduction). This is where the money is. This is where the ’86 Act refused to go. And this is where the Code has expanded with abandon during the past 25 years.

Testimony of Jonathan Talisman, Former Assistant Secretary of the Treasury for Tax Policy, 2000-2001, United States Department of Treasury, Washington, DC

Key passage:

Fourth, while an ideal tax system would not include many tax expenditures, we are not starting a tax system from scratch. Many of the largest “tax expenditures” are long-­‐time features of our system embedded in the fabric of our economy. These include items such as the employer-­‐provided health exclusion, deductibility of home mortgage interest, deductions for charitable contributions, incentives for retirement savings, the deduction for state and local income taxes, reduced rates on capital… To avoid false expectations, we need to be careful in how we talk about base broadening, and consider the practical, economic and social effects of eliminating tax expenditures.

Testimony of Eric Solomon and Mark Weinberger, Former Assistant Secretary of the Treasury for Tax Policy, 2001-2002, United States Department of Treasury, Washington, DC

Key passage:

What is important to recognize, however, is that when considering comprehensive tax reform, such as broadening the tax base and lowering marginal tax rates, the type of tax provisions that will be under consideration are not loopholes. The major tax expenditures are tax provisions that for the most part have been in the Code a long time, and were carefully debated and added to the Code to achieve specific policy objectives, as discussed above (see Chart 6). When modifying or reducing either tax preferences or direct spending, lawmakers must consider the underlying social policy or economic policy the provision was meant to promote.

Testimony of Pamela Olson, Former Assistant Secretary of the Treasury for Tax Policy, 2002-2004, United States Department of Treasury, Washington, DC

 

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Representative Dave Camp (R – MI), chairman of the House Ways and Means Committee, opened today’s introductory hearing on fundamental tax reform with a statement in which he mentioned tax expenditures five times and cited the Bowles-Simpson report which, “called for eliminating all tax expenditures”.The following witnesses have or will give remarks during todays hearing:

The Honorable Nina E. Olson, National Taxpayer Advocate, Washington, D.C.

Robert A. McDonald, Chairman of the Board, President and Chief Executive Officer, The Procter & Gamble Company, Cincinnati, Ohio, testifying in his capacity as Chairman, Fiscal Policy Initiative of the Business Roundtable, Washington, D.C.

Warren S. Hudak, President, Hudak & Company, LLC, New Cumberland, Pennsylvania

Kevin A. Hassett, Ph.D., Senior Fellow & Director of Economic Policy Studies, American Enterprise Institute, Washington, D.C.

Martin A. Sullivan, Ph.D., Contributing Editor, Tax Analysts, Alexandria, Virginia

Below is a copy of Chairman Camp’s remarks


Chairman Camp Opening Statement: Hearing on Fundamental Tax Reform

The Committee will come to order.

We meet today, in our first hearing of the 112th Congress, to begin what I expect will be a long discussion – and one that I hope will be bipartisan – on the need to reform our federal income tax system.

As I did on Tuesday, let me again extend my appreciation to the Ranking Member for agreeing to allow this hearing to move forward today, even though the Committee did not officially organize until two days ago.

Twenty-five years ago, a Democratic House and a Republican Senate sent to the White House, and the President signed, landmark legislation known today in the tax world as “The 86 Act.”

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The House Ways and Means Committee will hold its first hearing on tax reform tomorrow at 9 A.M. The hearing is important for the affordable housing industry as it could give insight into the scope of the intended reform. A slew of reports suggest that substantial reforms could be in store, including an elimination of tax expenditures. It remains to be seen whether or not Low Income Housing Tax Credits are in danger.

Hearing Advisory from the Ways and Means Website:

Chairman Camp Announces First in a Series of Hearings on Fundamental Tax Reform
First Ways and Means Hearing of the 112th Congress to Examine the Burdens Imposed by the Current Federal Income Tax System and the Need for Reform
Thursday, January 13, 2011

House Ways and Means Committee Chairman Dave Camp (R-MI) today announced that – pursuant to House Rule XI, clause 2(g)(3), and with the concurrence of the Ranking Minority Member – the Committee on Ways and Means will hold a hearing on the costs imposed on families, employers, and the economy at large by the current structure of the Federal income tax.  The hearing will take place on Thursday, January 20, 2011, in 1100 Longworth House Office Building, beginning at 9:00 A.M.

In view of the limited time available to hear witnesses, oral testimony at this hearing will be from invited witnesses only.  However, any individual or organization not scheduled for an oral appearance may submit a written statement for consideration by the Committee and for inclusion in the printed record of the hearing.  A list of invited witnesses will follow.

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With the debate over extending the Bush-era tax cuts coming to a close, Washington has already set it’s sites on broader tax policy issues. A recent New York Times article revealed that a tax code overhaul could become a major component of the President’s tax plans in the coming two years. The suggestion follows recent comments made by the President:

I’ll have the opportunity to make the case that we’ve got to have tax reform, that we’ve got to simplify the system, that we do have to cut spending where it makes sense. But we’re also going to have to make sure that we’ve got a tax code that is fair and that looks after the interest of middle-class Americans and continues to grow the economy.

The President’s comments are supported by a slew of recent reports on the national debt and tax policy. A key component of all three reports is the elimination or signifiant reduction of tax expenditures. Expenditures that all reports indicate account for roughly $1 trillion dollars in lost tax revenue.

The Bipartisan Policy Center’s Debt Reduction Task Force released a report on November, 16th which suggest, “An end to almost all tax expenditures to offset the costs of the much lower tax rates”. The President’s Economics Recovery Advisory Board released a report in August which calls for, “Eliminating specific expenditures [to] improve efficiency while simplifying the tax code.”

Most recently, the The National Commission on Fiscal Responsibility and Reform called for a comprehensive tax reform that would, “Sharply reduce rates, broaden the base, simplify the tax code, and reduce the deficit by reducing the many “tax expenditures”—another name for spending through the tax code.”

While the reports agree on tax expenditure reduction, they disagree on the scope of the reform. The Commission on Fiscal Responsibility offers two scenarios of expenditure reduction, a “zero-plan” that could, “reduce income tax rates to as low as 8%, 14%, and 23%”, and a less extreme reduction allowing for some remaining tax expenditures, “Even after adding back a number of larger tax expenditures, rates would still remain significantly lower than under current law.”

The Bipartisan Policy Center distinguishes between needless expenditures and those that offer an economic benefit, “While some tax expenditures promote important social and economic goals, others have little economic justification”. This is an important distinction for those in the Affordable Housing industry who fear a complete elimination of tax expenditures could mean the end of the LIHTC program.

“We are certainly following the issue very closely”, said Peter Lawrence, senior policy director for Enterprise Community Partners, Inc, “We have made the point of communicating [to the President and Congress] the Low Income Housing Tax Credit program’s 25-year track record of success.”

Both Mr. Lawrence and the reports see the alternative to LIHTC as the expansion of housing vouchers or a new grant program all-together. These limited options make the demise of the tax credit program seem less likely, “We are very skeptical that congress would decide, in the context of discussion on the national debt, to fund an 8 billion dollar grant program.”

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