ABA/AICPA/TEI joint letter concerning administration's 2005 budget.

February 24, 2004

On February 24, 2004, Tax Executives Institute joined the American Institute of Certified Public Accountants and the American Bar Association Section of Taxation in a letter to Treasury Secretary Join W. Snow concerning the Administration's 2005 budget.

The American Institute of Certified Public Accountants, the American Bar Association Section of Taxation, and Tax Executives Institute have been working together over the past few years to sensitize the public, the Administration, and the Congress to the urgent need for major simplification of the tax laws. We therefore are pleased that the Administration has included several specific simplification provisions in the 2005 revenue proposals. This letter reflects our jointly-held views only on the simplification aspects of the Administration's proposals.

We especially welcome the proposals to simplify the tax laws for families, including the proposals to adopt a uniform definition of qualifying child for purposes of various child-based benefits, to eliminate the income-related phase-outs for the adoption tax credit and exclusion, to eliminate the household maintenance test for head-of-household filing status, and to simplify the complex computational and eligibility requirements for the earned income tax credit and child tax credit. As you know, these rules are some of the more complex provisions of the Internal Revenue Code, and the Administration's proposals will provide much needed relief to the families who benefit from these provisions. We also appreciate the Administration's willingness to seek simplification of the retirement savings and education incentives regimes, which also are rife with complexity.

Perhaps the most significant legislative item contained in the revenue proposals was not a proposal, but a statement that the Treasury Department has been directed to study the alternative minimum tax ("AMT") with the goal of producing a long-term solution. The widely recognized and long acknowledged gravity of the AMT problem warrants an immediate, permanent solution, and we encourage you to complete this study this year. The appropriate committees of our respective organizations stand ready to provide technical assistance with transitional and other implementation issues raised by any proposals to address this pressing problem.

In addition to the various legislative proposals announced with the Administration's budget, we understand that the Treasury Department is reviewing various regulatory and administrative rules and procedures that can be simplified. Although such efforts are never easy, we agree that it is necessary and we are prepared to assist the Treasury Department and the Internal Revenue Service in these important efforts.

We recognize that revenue and other pressures may impede progress on wider simplification reforms. However, the complexity of the tax system imposes substantial economic costs, as well as fostering non-compliance. It is therefore imperative that all involved in the tax-writing process give much greater priority to simplification when deciding whether to advance a public policy goal through tax incentives rather than through direct spending programs.

It is often said that tax simplification has no constituency. Our three organizations pledge our best efforts to change that perception. Our group has previously submitted recommendations concerning both individual and business tax simplification, and we stand ready to assist the Administration in implementing these and other recommendations. We applaud the efforts of the Administration in helping to focus public attention on the need for simplification and urge you to continue identifying and pursuing new opportunities for simplifying the Internal Revenue Code.