Obama's Tax Panel Holds First Public Meeting

by Mike Godfrey, Tax-News.com, Washington

01 October 2009

A White House advisory panel set up by President Obama to study how the US tax code can be simplified has held its first public meeting.

At the meeting, held on September 30, business representatives reiterated the widely held view that the more complex the tax system is, the harder it is to comprehend and comply with, and therefore taxpayers will not tend to pay the exact amount that they owe. They highlighted the confusing rules for deducting expenses for the self employed and small business owners, such as vehicle running costs and home office expenses as examples.

In an article written for the Wall Street Journal earlier this year, National Taxpayer Advocate Nina Olson said it is high time that politicians stopped talking about tax reform and made a serious effort to trim the US tax code. According to Olson, who represents the interests of US taxpayers in her role as Taxpayer Advocate, an independent office of the Internal Revenue Service, there have been more than 3,250 changes to the tax code since 2001 - an average of more than one a day. Last year, there were more than 500 changes alone. What’s more, nobody is quite sure quite how long the tax code is any more. Olson’s office turned up 3.7 million words during the course of preparing her last annual report to Congress.

The business representatives also warned that the administration's plans to increase the top rates of personal income tax would amount to an increase in tax on businesses because many business owners have structured their affairs so that business income flows through to the individual.

The Obama administration intends to allow certain temporary tax cuts which benefit taxpayers earning USD250,000 per year or more, legislated under the previous Bush administration, to lapse when the lower taxes are due to expire at the end of next year. This will mean that the top rate of income tax will rise to 36.9% from its current level of 35%, which has been in force since Bush's first round of temporary tax cuts in 2001. Obama also proposed to restore capital gains tax to its pre-2001 level for those on high incomes.

President's Obama's tax panel was established earlier this year and it appears that the only limitation on its remit is that any recommendations should not raise taxes for those earning less than USD250,000 per year in 2009 and 2010. However, a key task of the panel, which is chaired by former Federal Reserve chairman Paul Volcker, is to study ways in which the so-called 'tax gap' between taxes legally owed and actually paid can be narrowed. Recent estimates put the size of this gap at about USD300bn per year.

The panel is due to report back to the President by the end of this year, and will hold additional public sessions ahead of the publication of its report.

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