US Tax Code Promotes Economic Inefficiency, Says Bodman

by Mike Godfrey, Tax-News.com, Washington

22 November 2004

Seeking to press home the need for a shake-up of the US tax system during President Bush’s second term, Deputy Treasury Secretary Samuel Bodman stated last week that the current tax code is unpopular, complex and distorts economic activity.

Addressing the Tax Foundation's annual conference, Bodman, the second most senior official at the Treasury Department, argued that tax reforms should be focused in such a way so as to allow US firms to enhance their international competitiveness and generate improvements in economic efficiency.

"The current tax system imposes large costs on our economy by causing households and businesses to rearrange their affairs in ways that make poor use of economic resources, and ultimately lead to lower living standards," Bodman observed.

He added: “When people make decisions about whether and how much to work, save, or invest because of the tax system rather than economic fundamentals, resources are allocated inefficiently."

Bodman stopped short of offering any specific recommendations to cure the current ills of the tax code. However, he hinted that the solution may have to be radical.

"In reality, we have a hybrid tax system with some elements of an income tax, some elements of a consumption tax, and some elements that are neither," he noted.

In the coming weeks, President Bush is expected to announce the appointment of a bipartisan panel that will explore tax reform proposals and make recommendations to the Treasury Department.

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