President Obama on Wednesday, Feb. 22, proposed several ideas for corporate tax reform with the intention of simplifying the code and spurring domestic economic growth.
Some of the elements of the president’s plan were suggested by the Bipartisan Policy Center’s Debt Reduction Task Force in its major report. While extremely unlikely to become law this year, the president’s initiative may make fundamental tax reform more likely to be high on the agenda in the next Congress. However, we believe that tackling only parts of the code will make fundamental tax reform less likely to occur, not more likely.
Both Senate Finance Committee Chairman Sen. Max Baucus and House Ways and Means Committee Chairman Rep. Dave Camp have held a series of hearings on the tax code and possible changes. Both hope to begin fundamental reform next year. As we have recommended before, the Debt Reduction Task Force believes that both corporate and individual tax reform must proceed concurrently. Our tax plan flattens the entire code, simplifies it, and either removes or substantially changes almost all present tax loopholes that give preferences to certain industries and individuals. In fact, a central tenet that our Task Force adhered to is that fundamental tax reform should not maintain special tax preferences for any one industry.
Lowering corporate and individual rates, and eliminating the hundreds of billions of dollars in tax expenditure annually, must go hand-in-hand. In addition, present estimates of government revenue show that a large gap persists between what is needed to fund the government and what current policy revenues will provide. Fundamental tax reform, with a net increase in revenues, remains the goal if we are to achieve stable debt-to-Gross Domestic Product ratios within the next 20 years.