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Max Baucus |
US Senate Finance Committee chairman Max Baucus announced on April 15 that a new series of hearings and roundtable sessions will be held in preparation for an overhaul of the tax code in 2009.
But some fear the initiative will get no further than previous attempts at tax reform.
"These issues have been elucidated many times in Congressional hearings, and I do not expect that this set of hearings will make significant progress toward developing and enacting a package of comprehensive tax reform," said Dan Berman, partner at Thelen Reid Brown Raysman & Steiner in Washington DC.
"If history repeats itself, as it likely will with the current Congress, it will be extremely difficult for a fully formed and effective tax simplification plan to make its way through Congress without a lot of political baggage attached to it," said Bill Hassell, international tax partner with Alvarez & Marsal Taxand. "This means we are probably headed for more of the same Band-Aids and stand-alone tax expenditure provisions that are loaded into the current tax code. The Finance Committee is quick to refute fears that no broad plans can come of these hearings.
"As with any series of committee hearings, the purpose here is to learn as much as possible about the issue in order to chart a course of action for Congress," said an aide to Baucus.
"Chairman Baucus will look at how the tax code is used to create social policy, how the tax code affects businesses here at home, and how it can ensure that American businesses can compete around the world," the adviser added. "Significant sections of the tax code expire in 2010. That is why Senator Baucus is beginning now to outline the principles for tax reform, in preparation for legislative action in 2009." Others are hopeful about the latest news.
"We are encouraged by the fact that the chairman seems to have laid out a thoughtful plan for gathering information and looking at our tax systems," said Lynda Walker, vice president and international tax counsel for the US Council for International Business (USCIB).
"It [tax reform] is a very difficult task so to see them progress and understand that these are big, complex issues and that competitiveness and equity are very important components of whatever the end result should be is very encouraging." Finance hearings on tax reform are scheduled for April 24, May 13, June 5 and June 26.
Following these hearings, expert roundtable discussions will carry forward the issues brought up at the hearings.
"The fact that the chairman hinted they will further explore things that may come out as issues in the hearings through smaller expert-level discussion is also a very good sign," said Walker.
"I think they should go to a wide group of interested parties, to people who have had a lot experience and involvement. I would hope that the companies that are members of the USCIB will be very involved when we get to the stage that we are talking about things like transfer pricing."
The committee's ambition is to produce a framework for any future reform. "The tax code hasn't seen a major overhaul since 1986," said Baucus' aide. "Congress has passed dozens of tax bills since then, leaving the American people – and the IRS – just as confused as we were more than 20 years ago.
It is Chairman Baucus' intent that these hearings and additional hearings will provide the tools and insight to build an actionable plan for tax reform in 2009." Industry observers believe this is a realistic focus.
"It sounds like the chairman is focused on trying to create an action plan," said Walker. "Clearly it is going to be hard for them to get any sort of consensus on a plan before the end of this year. But regardless of who wins the [presidential] election I think the expectation is that taxes will be a component of whatever their plans are going into office."
But some believe there is still a danger the committee could fail in their objectives.
Date of hearing |
Subject |
May 13 |
Taxing individuals: This hearing will review the concept of implementing social policies through the tax code, will identify those goals that the tax code addresses most effectively, and will ask whether these goals should be part of a reformed system |
June 5 |
Taxing businesses: This hearing will explore how the US taxes the income of domestic non-corporate businesses and will seek to identify the economic effects of the current multi-tiered pass-through regime |
July 26 |
Taxing American multinationals: This hearing will examine how to ensure equity and competitiveness in taxing of multinational companies |
Source: http://www.senate.gov/~finance/press/ Bpress/2008press/prb041508.pdf |
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"In order to produce an effective plan of action the finance committee will need to put aside its traditional party differences and embrace the concept of true tax simplification in a way meaningful to all taxpayers," said Hassell.
"In essence we need a broader tax base and a fairer tax code. The committee needs to confront the globalisation of the world's economies and recognise that we are now a service economy in the US."
The biggest American companies are keen to support the process.
"We are here as a resource to the committee and are happy to provide expertise to the discussion in terms of the real world experience of our companies and members," said Walker. "We have a membership base that has an excellent perspective to bring to this dialogue because they are the world's largest multinationals and they are functioning successfully in this global economy and are important to the stability of the US economy.
"We can't try to influence the hearings or the plans until we know more details," she added.. We are going to be very vigilant in watching what is going on. We are certainly available to them any time that they want to speak with us or have input from our perspective."
These hearings will not lead to an overnight solution and political pressures are fierce.
"These things take a very long time," said Walker. "There has to be a convergence of events to occur to create the opportunity for real change. Tax reform is very difficult and is driven not only by policy concerns but by politics.
For the stars to align in such a way that Congress can act in a sweeping manner is unusual. The chairman wants his members to be ready for if and when that occurs and there is some feeling that it will occur because we are in this period of change and economic uncertainty."
"We all recognise that the task of tax simplification is an extremely difficult political proposition to deal with, but Congress will need to resist the considerable pressure that will bring to bear on it from the various constituent groups that have traditionally sought to influence the tax code in order to develop a plan that is both workable and fair," said Hassell.
"[Comprehensive tax reform] will take presidential leadership, which I don't expect we will see unless a candidate makes tax reform an issue in the presidential campaign and then wins," said Berman. "That could yet happen in this year's campaign."
"It will be interesting to see what happens in the next couple of years, I predict we will be very busy but what that means, right now I don't know," said Walker.
