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President Obama Will Begin `"Conversation" with Congress Next Year to Overhaul the Federal Tax Code

By Jim Hamilton

In a recent interview with NPR, President Barack Obama said that he will begin a "conversation" with Congress in 2011 about doing a complete overhaul of the federal tax code. While not agreeing with every proposal made in a recent report by his Fiscal Reform Commission, the President did endorse the Commission?s proposals to simplify the Code, eliminate loopholes, deductions, and exemptions, as well as reforming the Code so that corporations, partnerships, mutual funds, and other enterprises can have a more efficient way of doing business. One thing that will not change with a new Code, vowed the President, is that it will be based on progressive principles under which people with wealth will pay more of a contribution to rebuilding America.

Calling the US federal tax code hopelessly confusing and broken, the Commission, co-chaired by former Clinton Chief of Staff Erskine Bowles of North Carolina, recommended as part of the overhaul of the Code a new corporate tax system with an end to LIFO accounting and the adoption of a territorial tax system for foreign-sourced income to put the U.S. system in line with other countries.

The question of whether Congress has the bi-partisan will to legislate a new tax code is a grave and great one. And make no mistake; legislation of this magnitude would have to be bi-partisan. President Obama knows this. He told NPR that the last time we reformed the federal tax code in 1986 it required a lot of conversations among a lot of different parties. But if people of good will can came together, he said, there can be a broad bipartisan agreement on a new Code. More philosophically, the President noted that every decade or two we must reform the tax code because loopholes get built in and special interest provisions get built in. There have been three major federal tax codifications in 1939, 1954, and 1986.

There appears to be support building in Congress for complete tax reform. Recently fourteen Democratic Senators wrote a letter to President Obama urging prompt action on legislation to completely overhaul the US federal tax code along the lines recommended by his Fiscal Reform Commission.

In reforming the Code, the President will work with key players, including Senate Budget Committee Chair Kent Conrad (D-ND), who has already called for fundamental reform of the tax code. Calling the current Code outdated and inefficient, Senator Conrad added that the Code is leaking hundreds of billions of dollars each year due to loopholes, abusive tax shelters, and offshore tax havens. Similarly, incoming Republican Chair of the House Budget Committee, Paul Ryan of Wisconsin, has called the federal tax code inefficient, distorted and manipulative and embraces broad tax reform.

Full post as published by Jim Hamilton's World of Securities Regulation on December 11, 2010 (boomark / email).