House Ways and Means Committee Holds First Hearing on Fundamental Tax Reform

January 20, 2011

The House Committee on Ways and Means held its first hearing on fundamental tax reform today. Chairman Dave Camp opened with the view that successful tax reform will be a difficult task:

I am under no illusion that the task before us will be easy. To really reform the tax code in a way that lowers the tax rate, broadens the base, and promotes the competitiveness of American companies, we will need to make some tough choices.

In her prepared remarks to the Committee, National Taxpayer Advocate Nina Olson referenced her 2010 Annual Report to Congress and the number one problem from that report: the complexity of the tax code. She noted that the “overwhelming majority of tax breaks by dollar value accrue to large segments of the taxpaying public” and that “virtually every taxpayer will have to give up cherished tax breaks.” She advocated putting every single deduction or exemption on the table and deciding which are necessary and their relative burden on taxpayers.

Robert McDonald, Chairman of the Fiscal Policy Initiative of the Business Roundtable and CEO of Proctor and Gamble, followed up with a discussion of America’s high corporate income tax and the disadvantaged situation of U.S. businesses. He noted that once Japan adopts its proposed corporate rate reduction, the United States will have the highest corporate tax rate in the OECD. He concluded:

Tax reform must increase the competitiveness of American companies in order to boost U.S. employment in the short term and to set the country on a strong path for long-term economic growth.

Warren Hudak, the President of Hudak and Co, a small business that provides tax services for other small businesses, testified on the importance of a simple tax code for small businesses. He asserted that small businesses spend 1.8 billion hours on tax compliance and incur costs of almost $19 billion every year. He urged a simplified tax system through fundamental tax reform:

By improving our tax system, Congress can address a constant concern of small businesses, reduce the cost of doing business, and create a tax system that will support economic growth.

Sander Levin, the ranking Democrat on the Committee, called for a bipartisan, bicameral effort with support from the President. He asked for the reform plan to follow a few basic principles: create jobs, promote economic growth, be fiscally responsible, and benefit working American families.

The witnesses and the members of the Committee, both Democrats and Republicans, outwardly expressed support for tax reform. But it remains to be seen if Congress can produce one.

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