US Tax Panel Explores Corporate And Small Business Tax Issues

by Mike Godfrey, Tax-News.com, Washington

10 March 2005

The Presidential advisory panel on tax reform on Tuesday turned its attention to taxation issues facing America’s corporate and small business taxpayers during its latest meeting in Tampa, Florida.

In testimony from several academics and tax law experts, the panel heard how the current state of the US tax code has placed an unfair and disproportionate compliance burden on small firms, while growing global competition and sophisticated tax planning has allowed the corporate tax base to be eroded.

“Small businesses and self-employed taxpayers, in particular, are burdened by the complexity of our tax code and bear a substantial proportion of the estimated $125 billion in compliance costs,” observed tax panel chairman Connie Mack.

“These costs create a disproportionate burden, as studies have found that the smaller the business, the higher the cost of complying with the tax code per dollar of tax paid. We have heard from small business owners from all over America who have told us that the tax code should be reformed and simplified so that these entrepreneurs can spend less time doing paperwork and more time growing their businesses,” he added.

Meanwhile, Douglas Shackleford, professor at the University of North Carolina's Kenan-Flagler Business School noted that the US corporate tax base is “under attack from many directions”.

"Despite a decade of record profits, the corporate income tax never recovered to the levels of the less prosperous 1970s,” Shackleford stated in his testimony.

However, he observed that the decline of the corporate tax sector has been a global phenomenon, caused by growing international competition which has affected “all countries' ability to extract corporate tax dollars".

Other factors which have contributed to falling corporate tax revenues according to Shackleford include: the rise of the knowledge economy with its associated intangible assets; growth of ‘S Corporations’ and partnerships that “pass through” taxes; deductions from employee stock options; and the formulation of tax shelters.

Shackleford told the panel that the success or failure of future tax reforms can be measured by a corresponding decline or growth in the country’s tax planning industry.

"The key to reducing the need for tax accountants and lawyers is the elimination of differences in tax rates. Whenever you tax the same income differently, you provide an opportunity for a planner to reduce taxes," he observed.

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