tax reform

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…]


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