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Tax reform: sidelined, but not forgotten ... your held needed.

The release of the Bush Administration's budget on February 6 confirmed that 2006 will not be the year of tax reform in the United States. Following the President's State of the Union Message (where the topic barely rated a mention), this was hardly a surprise, but it remains disappointing for a couple of reasons. First, regardless of whether you approve of its range of prescriptions for change, the President's Advisory Panel on Federal Tax Reform--which issued its report last November--did an excellent job of documenting the structural and other flaws in the Nation's tax laws. Second, as more and more countries take action to reduce their corporate tax rates (most recently, Spain), the U.S. system becomes less and less competitive. To be sure, tax reform cannot be all about reducing the corporate tax rate; if nothing else, history teaches that rate reductions are often accompanied by "base broadeners" whose effect--especially in terms of compliance costs--may dwarf the benefit of the rate cut. Nevertheless, there is a growing consensus that corporate tax rate reductions should be a significant part of the mix.

Four Principles of Tax Reform

Based on the State of the Union and Budget, the Administration has other tax priorities this year, most significantly, making the individual income tax rates permanent. As a broad-based group of business taxpayers, TEI has historically not taken a position on provisions affecting the taxation of individuals (other than in our role as a representative of employers). That does not mean, however, that we are--or should be--oblivious to how individual rates or other provisions affecting individuals reverberate through the tax system and the economy and, indeed, constrain Congress's options for the future. Thus, in addressing this topic last fall, the Institute identified four overarching principles that we believe should guide the tax reform process.

The first is simplicity and administrability of the system. The current Internal Revenue Code is much and properly maligned for its complexity and the drag that the cost and "distraction" of compliance places on business. To be sure, the tax system that ultimately emerges from tax reform may not be simple, but it can be simpler than the current system. TEI remains committed to pursuing this often elusive goal.

The second principle is competitiveness. In a global economy, the U.S. tax system should promote rather than hinder the competitiveness of U.S. businesses. Many industrialized and emerging nations have recently lowered their corporate tax rates without significantly expanding their tax bases. Thus, we have urged the Treasury Department and Congress to consider the overall competitiveness of the U.S. tax system as well as the extent to which the system discourages or promotes incremental U.S. business investment.

Third, remembering the lesson of the last major round of tax reform (in 1986), we have advocated a proper balance in the tax burden among sectors" of the economy and, especially, between the individual and business components. (The 1986 Act effected a shift of $120 billion from individuals to the business community.) There is an old saying that any proposal that robs Peter to pay Paul will always have the support of Paul, but as an organization that represents Peter, Paul, Mary, and many, many other (but not all) taxpayers, TEI remains committed to helping Congress craft a tax reform package that promotes the growth of the economy and competitiveness of U.S. businesses without unfairly disadvantaging any one industry sector.

Finally, because of the linkage between the federal and state tax bases, the ripple effect of tax reform on the states must be kept in the forefront of considerations.

What Lies Ahead: Your Help Needed

While events to date suggest that 2006 will not be a year of action on tax reform, it should--and must--be a year of preparation. To this end, TEI has formed a task force on fundamental tax reform, whose composition is diverse (in terms of the industries and, indeed, even the nations represented) and whose members are both experienced and practical in their approach. The group --which is chaired by Lisa Norton of the Seattle Chapter (lnorton@amazon.com)--has been given a broad charter, enabling it to consider not only the range of options laid out by the President's Advisory Panel, but other alternatives (including a broad-based consumption tax) as well. The group has been charged first and foremost with listening to the broad constituencies represented by TEI. At the end of the day, TEI may not be able to embrace any single proposal or set of proposals, but by doing our homework, I am confident that we can contribute to the process in a positive, constructive way.

That's where you come in. TEI can represent the business community only if we hear from you, not only about "big picture" topics (such as consumption taxes, the merits or demerits of a territorial system, and corporate rates) but on smaller ones as well. The 1986 Act holds at least one lesson here: The business community must remain vigilant that what is given with one hand isn't taken away with or undermined by the other. Therefore, I urge you to become engaged and to share not only your reactions to the Advisory Panel's proposals, but also your own ideas (or even your darkest fears). In this age of unrelenting demands on corporate tax professionals (from Sarbanes-Oxley and FAS 109 to "minor little things" like corporate e-filing), it will not be easy to find the time to become involved. Nevertheless, I encourage you to somehow find the time to let us know what you think. I know TEI will benefit from your efforts, and I think you will, too.

This request, moreover, is directed not only to our members in the United States, but also those in the rest of the world. As a global organization, TEI is mindful that its advocacy efforts cannot be biased toward U.S.-based companies, and the best way to ensure that we do not become ethnocentric or nationalistic, is for us to play to our strength--our diversity. Please send your comments to Lisa or directly to me (mikebo@microsoft.com).

Expanding Our Membership

Another way you can help is by encouraging your fellow tax executives--in your own company or elsewhere--to join TEI and become involved themselves. There has never been a better time. As reported elsewhere in this issue, in mid-January, TEI's Board of Directors adopted the Institute's first-ever membership initiative, voting to reduce dues and waive TEI's initiation fee for the next six months. Hence, from now until June 30, 2006, qualifying tax executives can purchase a paid-up membership through June 30, 2007, for only $100.

Why is TEI doing this? Let me assure you, it's not out of fear. TEI's membership has never been higher. In North America, Europe, and Asia, our meetings are drawing strong crowds and garnering excellent ratings, and our financial condition is amazingly solid. No, the Board acted not out of weakness, but strength. We want to reach out to smaller and mid-size companies that have never been represented in TEI or to larger companies that have never had more than one or two members. I personally believe TEI's dues are a bargain, but we have received feedback that the $200 dues, especially combined with our $200 initiation fee, might be a barrier to some tax executives. By dramatically reducing the cost of joining, we hope to entice a large number of tax professionals to "give us a try." We're sure that if they do, they'll renew their membership.

What does TEI gain if the incentive program is a success? New members to be sure, but not just to count but also to contribute. As my comments on tax reform suggests, the tax system is facing a large number of challenges, and TEI wants to increase its membership so it can be a better, stronger, more representative voice for the business community. Whether the issue is Tax Reform or Uncertain Tax Positions or the prospects of an auditor's declaring your tax department is guilty of a "material weakness," tax executives can learn from one another, support one another, and work with one another to forge solutions that improve the tax system, aid economic growth, and enhance our working environment.

If you're reading this column, the odds are you are already a TEI member. If you are, I encourage you not only to let your non-member colleagues know about our "sale," but also to become more engaged yourself. If you are not a member, I ask you to give us a try. A good place to start would be TEI's upcoming Midyear Conference. The full program has been mailed to the entire membership and is accessible online, and if you join now, you can see first hand why TEI has been a leader in tax education and networking for more than 60 years. I look forward to seeing you in Washington.

Michael P. Boyle

International President

Michael P. Boyle TEI President
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Author:Boyle, Michael P.
Publication:Tax Executive
Article Type:President's Page
Date:Jan 1, 2006
Words:1496
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