Following up on this morning's post, the President’s Economic Recovery Advisory Board (PERAB) today unanimously approved and sent (Chair Paul Volcker's letter; White House blog) to President Obama The Report on Tax Reform Options: Simplification, Compliance, and Corporate Taxation (126 pages).
Press and blogosphere coverage:
Here is the preface:
What follows is a report of the President’s Economic Recovery Advisory Board (PERAB) on options for changes in the current tax system to achieve three broad goals: simplifying the tax system, improving taxpayer compliance with existing tax laws, and reforming the corporate tax system.
The Board was asked to consider various options for achieving these goals but was asked to exclude options that would raise taxes for families with incomes less than $250,000 a year. We interpreted this mandate not to mean that every option we considered must avoid a tax increase on such families, but rather that the options taken together should be revenue neutral for each income class with annual incomes less than $250,000. A similar principle of revenue neutrality was used in the 1986 tax reform legislation in which changes that raised revenue were combined with cuts in personal income tax rates. The specific changes we considered can either raise or lower revenue. We realize that revenue neutrality by income class might result in increases or decreases in tax liability for subgroups or individual taxpayers within each income class – that is, revenue neutrality might result in “winners” and “losers.” We hope that the Administration and the Congress will select changes that are desirable on their merits and not worry about the distributional effects of each of them individually. The entire package of options selected should be evaluated by the Treasury or the Joint Committee on Taxation (JCT) to see what impact it has on tax liability by income class. If, as seems likely, the package raises taxes for some income groups and lowers them for others, this could be offset by adjustments to the standard deduction, tax rates or other provisions. Of course, even if the rates are adjusted to be revenue neutral in each income class, there will be individual taxpayers who gain and lose. We did not try to hold all taxpayers harmless in the options we evaluated, and we were not asked to do so by the President. It would be impossible to do so without substantial costs in terms of lost revenues.
The Board gathered information from business leaders, policy makers, academics, individual citizens, labor leaders, and many others. Our findings are the result of months of input from many people, and we thank them for their advice. In addition, over the years there have been many reports on tax reform options by both government agencies and private entities. There has also been substantial academic research on these issues. We have benefited greatly from studying these previous reports and materials.
The Board was not asked to recommend a major overarching tax reform, such as the 1986 tax reform, the tax plans proposed by the 2005 Tax Reform Panel, or proposals for introducing a value added tax in addition to or in lieu of the current income tax system. We received many suggestions for broad tax reform, and some members of the PERAB believe that such reform will be an essential component of a strategy to reduce the long-term deficit of the federal government. But consistent with our limited mandate, we did not evaluate competing proposals for overarching tax reform in this report.
Finally, it is important to emphasize at the outset that the PERAB is an outside advisory panel and is not part of the Obama Administration. We have heard the views of experts in the government in the same way that we have heard the views of outside experts and interest groups. We have attempted to distill these views in this report to provide an overview of the advantages and disadvantages of tax reform options that achieve the three goals of our mandate: tax simplification, greater tax compliance, and corporate tax reform. Our report is meant to provide helpful advice to the Administration as it considers options for tax reform in the future. The report does not represent Administration policy.
