Income Taxes: Concise History and Primer.

By Robert M. Willan Claitor's Publishing Division, 1994)

There is much talk today of the need and political impetus for fundamental tax reform. The Chairman of the House Ways and Means Committee has proclaimed the need to "tear the system out by the roots," and a plethora of tax proposals compete for the public's affection. What direction the debate will take -- what shape the system will ultimately assume -- remains unclear. Before rushing headlong to change the current system, however, tax executives, practitioners, and policy makers would be well advised to study the Internal Revenue Code and to understand why it looks the way it does. They might discover, as Pogo did, that the enemy of a fair, coherent, and easily understood tax law is not necessarily the Congress or the "faceless bureaucracy" but ourselves; they might discover that the tax system merely reflects the competing demands we place upon it.

A good place to start on the road to discovery is with the book here under review. With more than 45 years of experience with our federal tax system, Robert M. Willan is uniquely qualified to write Income Taxes: Concise History and Primer. Mr. Willan is a nationally known lawyer and has extensive background in tax legislation and tax policy issues. He has worked as a private practitioner, a corporate tax counsel, a trial attorney with the Internal Revenue Service and the Justice Department, a member of the tax staff of the U.S. Treasury Department, and Chief Tax Counsel of the Senate Finance Committee.

The book is truly an informative, educational, and helpful commentary on the federal income tax system. This 311-page history has eleven chapters, with a well-organized text containing numerous subheadings making it very "reader friendly." Footnotes are avoided by setting forth excerpts from committee reports, the Congressional Record, court cases, and other authorities in an appendix. Other appendices contain valuable information including an overview of tax history by topics for the period 1913-1993, a chronological index of tax rules, and a glossary of selected tax related terminology.

The book begins with separate forwards by Russell Long and Wilbur Mills, respectively, former Chairmen of the Senate Finance and House Ways and Means Committee. It then proceeds to discuss the tax law before the 1913 adoption of the Sixteenth Amendment and, amazingly, to summarize and comment on the most significant income tax acts from the initial 1913 Act through the 1993 Budget Reconciliation Act. Following this history, five chapters of the book discuss a number of tax issues including capital gains, depreciation, investment tax credit, minimum tax, and tax shelters. Another chapter is devoted to the tax legislative process, tax lobbyists, and tax fairness and simplification objectives.

The author discusses in some detail the complexity of the income tax laws and refers to the simplicity of a sales tax or a gross receipts tax. It is an argument, of course, that resonates today as it has for more than half a century. Although not mentioned by Mr. Willan, I believe it is worth noting that during the Senate debate in 1921 on a proposed federal sales tax amendment, Senator Walsh of Massachusetts stated:

If a sales tax system could be devised which would

eliminate from business the corporation taxes and

all income taxes, it would have powerful support

among many people throughout the country ... Our

business people have been disgusted and discouraged

in finding that years after their taxes had

been paid inspectors called at their places of business

and examined their accounts for the purpose

of trying to levy additional tax upon them. No man

knows under the present law whether or not he is

ever to be square with the Government. Congressional

Record, November 4, 1921, at 7296.

Mr. Willan relies on his years of tax experience to offer many insights and observations on matters discussed in his book. The chapters dealing with selected tax issues are almost certain to hold the readers interest. Fifteen pages of the book are devoted to the subjects of depreciation and the investment credit with five pages referring to the complex depreciation recapture provisions of the 1962 tax act -- legislation developed by Mr. Willan while in the Treasury Department. The depreciation discussion covers legislation enacted since 1913 and also refers to early Treasury Regulations, "Bulletin F" as issued in 1931 and revised in 1934, the Treasury guideline depreciation rules that were issued in 1962, and the 1971 Asset Depreciation Range system, which Congress subsequently authorized by the 1971 tax act. Interestingly, the author describes the Reserve Ratio Test set out in the 1962 depreciation guideline rules as a "mechanical compliance test." Others have referred to the guidelines as being "unfair and unrealistic" and amounted to "taxation by revenue agents instead of taxation by law." (Joel Barlow, The Tax Law Bias Against Investment in Production Facilities, 26 National Tax Journal 415 (Sept. 1973.

Another issue discussed in the book is the history of the taxation of capital gains. Mr. Willan details the various rates of tax imposed and the holding periods required for the asset to qualify for capital gains treatment. He also describes several proposals for the tax treatment of capital gains, such as indexing the cost basis of the asset, varying the tax rate in relation to the length of time the asset is held, and permitting a partial tax-free roll-over of the sale of the asset where the gains are reinvested in a similar asset.

Mr. Willan has advised me that he wrote the book because there was a need for a simplified explanation in income tax history and basic concepts. I believe that he has satisfied that need and has, in addition, provided a valuable book for use during the upcoming debate on tax reform. This book is particularly timely in view of the number of tax reform proposals that have already been introduced during the 104th Congress. With its discussion of tax issues, the complex nature of our tax system, and tax policy objectives, this book should be helpful in evaluating the merits of tax reform proposals such as the flat tax, the value added tax, and the national retail sales tax. The principles of tax fairness and tax simplification are key to any sound tax policy, and Mr. Willan discusses them in clear and understandable language.

For those who want or need a brief history of our federal tax system, along with a commentary of related tax issues and topics, this book will make a valuable addition to their reference library. The book should appeal to a broad range of individuals including members of Congress and their staff, attorneys, accountants, economists, business leaders, students, and particularly those who are currently studying ways to improve and simplify our federal tax system.

Robert M. Willan's Income Taxes: Concise History a d Primer was published by Claitor's Publishing Division in Baton Rouge, Louisiana. Information on ordering the book may be obtained by calling [phone] (in Louisiana, [phone]), or by faxing [phone].