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Proposed Budget Takes Steps Toward Tax Reform

February 15, 2011

President Obama’s proposed budget for fiscal year 2012 shows the White House is actually serious about tax reform.

After Obama talked about working with Congress during his State of the Union address about trying to simplify the individual and corporate Tax Code, his budget makes some honest attempts to get there.

“They have a section dealing with simplification of the Tax Code,” said Edward Karl, vice president of taxation at the American Institute of CPAs. “They are very targeted. We applaud any effort to reduce the complexity of the federal Tax Code.”

Ernst & Young also sees several ways in which the new Obama budget attempts to make the mind-bogglingly complex Tax Code at least somewhat more elementary.

Eric Solomon, the director of Ernst & Young LLP¹s National Tax Department in Washington, D.C., who served as Assistant Secretary for Tax Policy at the U.S. Treasury Department from December 2006 to January 2009, had the following to say about the Tax Code:

“With respect to taxes, the Administration¹s 2012 Budget proposal has four leading points,” he noted. “First, the President calls on Congress to begin the process of comprehensive tax reform, building on the work of the fiscal commission.

“Second, the president calls on Congress to work with the administration on corporate tax reform, including simplifying corporate taxation, eliminating special provisions and lowering the corporate tax rate, all in a revenue-neutral manner.

“Third, the administration proposes to allow the 2001/2003 tax relief to expire after 2012 for high-income individuals, except dividends would be taxed at a maximum rate of 20 percent. In addition, the administration supports the return of estate tax to 2009 rates and exemption levels for individuals dying after 2012.

“Fourth, the administration proposes to offset a ‘patch’ of the alternative minimum tax for three years (2012 to 2014) by reducing itemized deductions for high-income taxpayers.

“Finally, in many other respects, the administration’s 2012 budget proposal is similar to last year’s proposal with respect to taxes, including various international tax revenue raisers.”

While that isn’t exactly as simple as, say, lopping everybody’s taxes down to 10 percent or so, it’s at least a step in the right direction. Whether or not much of the president’s budget will manage to get through Congress these days is anybody’s guess. But hopefully, in whatever form the budget ultimately emerges, with spending hacked down to whatever levels will ultimately satisfy the deficit hawks, perhaps the Tax Code will get a little easier on everybody. Of course, not too easy, because clients should still need to turn to their accountants each tax season.

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