With the President's Advisory Panel on Federal Tax Reform due to report Nov. 1, we asked industry leaders, many who made Accounting Today's recently released 2005 Top 100 Most Influential People list, to tell us what sort of tax system they would create.
Through the rest of October, WebCPA will post new comment collections every Friday.
This week, among others, thoughts from AICPA president and chief executive Barry Melancon, noted securities lawyer Melvyn Weiss, former regulator Lynn Turner and National Conference of CPA Practitioners president Carol Markman.
"The critical question is, "How is the tax system designed?" The system must strive to be simple, fair, efficient and transparent. A system based on principles of good tax policy would gain greater respect from taxpayers and secure higher levels of compliance, thus fulfilling the ultimate goal of generating adequate revenue to fund the government."
-- Barry Melancon, President and CEO, AICPA
"I'd be in favor of a VAT system, since it spreads the tax impact across the entire economic spectrum to consumers/users, and rewards savings."
-- William Hermann, Managing Partner, Plante & Moran
"The problem is that no matter what kind of tax system we may start with, in no time it will become as convoluted as the current system. This is due to the fact that the tax system is the biggest prey of special interest groups."That said, I don't know what sort of tax system may make more sense in today's environment and global economy."
-- Chandra Bhansali, President, AccountantsWorld
"The income tax system should be essentially a flat tax on gross income, with the exception of allowable deductions for charitable donations, and state and local income tax. As the government moves away from directly helping the poor, and funding public television and the arts, a deduction for charitable donations would encourage individuals to fund the gap created by less government spending in these areas. A deduction for state and local income taxes is also essential to ease the burden for individuals living in high tax states, such as New York, Massachusetts and California."A flat tax system is beneficial because of its simplicity. Simplicity hopefully allows for greater compliance from individuals and corporations. But, most importantly, simplicity allows for utilizing greater resources for enforcement and collection and less for implementation and interpretation of the tax laws."
-- Melvyn Weiss, Senior Partner, Milberg Weiss Bershad & Schulman
"Any new tax system has to have as its core principles simplicity and fairness. Our current system is way too complex and, if nothing else is done, the alternative minimum tax should be repealed."
-- Arleen Thomas, Senior Vice President of Member Competency and Development, AICPA
"A sales tax-based system with very limited exemptions for food and clothing. It would be less difficult to administer and less time-consuming for most Americans. It would also likely bring in receipts from those currently gaming the system. It would also reduce complexity."
-- Lynn Turner, Managing Director of Research, Glass Lewis & Co.
"The tax system must be progressive and social policy should not be part of the tax code. Currently we have a tax system that makes a lot of social policy judgment calls, providing benefits and creating penalties depending on the mood of the country. The tax system should be socially and gender-neutral; for example, neither favoring nor penalizing married people. It should be based on income, rather than consumption -- for instance, a national sales tax would be a regressive tax that often taxes the people least able to pay."I would like to see a tax system based on the elimination of cash, as we know it. This would create a trail of all economic activity, which would aid in the elimination of the underground economy and help in the fight against global terrorism.
"The tax code must not tax non-individuals, because any tax a business must pay is passed on to the final consumer of the goods or services in the form of higher prices. Business decisions to produce and deliver goods and services would not be influenced by the tax code, but by economics."
-- Carol Markman, President, National Conference of CPA Practitioners
"As an auditor at heart, I do not have a complete handle on all the implications of a "newly created" tax system; however, as a business and personal taxpayer, I do believe that challenging the ever-changing tax system has merit. If left to me, the overall effort would be to simplify the system and work out a graduated "flat tax" approach at the national level, leaving the states to devise the best system given their circumstances."In discussing this question amongst our group, a key to any change process would be to lay out a conceptual framework for taxation similar to the financial accounting framework. The framework for taxation would match broad public policy values, allowing the "new system" -- flat tax or other -- to be consistent and follow such values."
-- Bo Fitzpatrick, President, AuditWatch Inc.
"Minimal government services are essential to the creation of a successful and thriving nation -- for example, a reasonable amount spent for defense, schools, colleges, roads, infrastructure, police and fire protection, courts and prisons, etc. are all vital, in my opinion. Further, I believe that additional government services are vital to the greatness of a nation -- a reasonable amount of help for the truly needy, resource management, trade management, etc. All of these programs cost money, and therefore I believe that taxes are a necessity."The question of whether an income tax or consumption tax is best is debatable, and arguments can be made for both. For example, I understand that many cash-intensive workers such as waiters, bellmen, landscapers, drug dealers, bookies, etc., pocket their earnings without paying taxes on them, while others who make the same amount of income report their entire earnings and pay their share of taxes.
"However, the income tax system that we have in place is tried and true, and is well-entrenched in our society. Any attempts to replace the current taxing system would surely change the normal buying behavior of the public even in the best of transitions, and who among us knows whether our country can withstand such turmoil."
-- J. Carlton Collins, President, Accounting Software Advisor
"Most people believe the "perfect tax system" is the one that taxes others. None of the proposed systems (flat tax or consumption tax) are perfect. Therefore, I would suggest a system that promotes capital investment and savings."
-- Gary Boomer, CEO, Boomer Consulting
"A flat tax on personal income that would require a portion to be put away for retirement, major purchases and medical expenses such as is done in some of the Far Eastern countries. I feel that future medical shortfalls will be a bigger crisis to retirees and a bigger burden on the federal government that we must begin addressing now. There would also be a federal sales tax on all purchases and bartering transactions at fair market value, with severe penalties for non-compliance. By minimizing abuses, more revenue would enter the stream and would minimize the impact on those people that are legally abiding the system."
-- Roman Kepczyk, President, InfoTech Partners North America
"Our current tax system is still based too much on social policy rather than on funding need. Right now, we cannot afford to be trying to modify behavior, but rather we must right some wrongs. Our deficit is out of control and it must be funded. This means keeping the estate tax and eliminating subsidies for industries and individuals.Ultimately, the income tax is the right form of system based on funding need -- it would be far better if we didn't have the mortgage deduction, since it creates an illusion of free financing in the minds of the average homeowner, and if we moved to more of a flat tax, perhaps on a graduated level with fewer breakpoints."
-- Mark Tibergien, Principal, Moss Adams
"It depends on from what perspective I am answering the question. Call me a cynic (I am), but tax professionals have a vested interest in a complicated system that allows them to put food on the table. Although I am a CPA, I am not a tax specialist, so I pay handsomely for advice. From the taxpayer's perspective, the simpler the better. But I don't expect to see a simple tax system in my lifetime; there are just too many competing special interests."
-- Joseph Wells, Founder and Chair, Associated of Certified Fraud Examiners
"If I were given a clean slate I would create a tax system that was consumption-based. Those who spent money would pay into the system. This way, those who spent more, i.e. the wealthy, would pay the lion's share of the tax. While some might argue that this would be unfair to the poor, I believe that it is the most fair to all. It might be possible to rebate a portion of the consumption taxes paid by those on the lower economic scale, and to assess a surtax on those who consume (i.e. spend) the most. With modern computer technology it shouldn't be too difficult to keep track of individual's expenditures, and a "tax return" could be use to make the adjustments."
-- Mitchell Freedman, President, Mitchell Freedman Accountancy Corp.
"Not being a tax professional, this is a difficult question for me, since I have not spent any time studying the issue. Certainly, any tax system should have incremental rates so that those making the most, pay the most; and any system should also be easy to understand, so as to promote voluntary compliance and reduce the desire for gaming the system."We must also create a system that is economically fair and, at the same time, divorced from political and self-interest. In other words, the tax system should not be driven by the politics of Congress, but rather the economic needs of the people."
-- Charles Landes, Vice President, Professional Standards and Services Group, AICPA
"I'm not much of a tax accountant...With that warning, I'd have to say that a flat tax system sounds more workable and fairer than any other."
-- Jack Ciesielski, Publisher, The Analyst's Accounting Observer
"I would create a national sales tax system, one that taxes "consumption" rather than "productivity." The current progressive federal income tax system creates friction on American ingenuity and productivity. A national sales tax obviously prevents black markets and the underground economy from escaping taxation, a vexing problem under the current income tax framework."
-- Stephen "Tony" Batman, Chair, CEO and President, 1st Global
"Any system that can be easily understood and complied with by the average citizen, encourages saving, and results in all citizens having a stake in controlling government spending."
-- Toby Bishop, President and CEO, Association of Certified Fraud Examiners
"I believe simplicity could be the key to a successful system of taxation, fully recognizing, however, just how complex our tax system is and that everything it comprises has a reason for being there. Thus, a "simplified system of taxation" may be an oxymoron. But I'll take a shot at it anyway."Possibly a solution to simplification is basing the system entirely on how much individuals or companies spend -- a sales or spending tax. I'm sure many people would find it ghastly to spend a 25 percent tax on all their purchases, but this would give consumers more discretion in how much they did contribute to the federal coffers. For those who have money and spend more, they would carry a larger share of the tax burden, but would do it fully accepting/knowing the cost that they bear for enjoying the fruits of their labors. Quite likely, this system would encourage people to save more, so to find a healthy balance between spending and saving, a smaller tax should be assessed on money deposited into savings or invested in securities and real estate, but measured annually and based on incremental growth so that individuals/companies would not be taxed on shifts from checking accounts to savings or securities/real estate."
-- Parnell Black, CEO, National Association of Certified Valuation Analysts
"Well, this may be heresy but I happen to think the tax system we have is conceptually right. Yes, it would be nice if it was simpler, but that is more a result of politics and the tax system's age than its intent. Unfortunately, taxes are complex in a complex economy and society like the United States'. Our tax system has two attributes that I consider important."Our tax systems are responsive to local market needs. Municipalities and states set local taxes based on what the local market requires and can bear. Trying to do this nationally is fraught with politics, allocation issues and difficulty in being responsive to local market requirements.
"While our tax system is a mix of various types of levies, it is largely based on personal and corporate earning. Value-added tax is the choice in many parts of the world, but I've always believed that consumption taxes discourage economic growth. An earnings tax, by contrast, indirectly impacts consumer purchases and provides the government more flexibility in supporting various country-wide programs, such as home ownership.
"What I would like to see is a simplified filing process that allows business and consumers to more simply file all returns in all jurisdictions where they have nexus. This today is unnecessarily complex and could be simplified through technologies such as XBRL, while leaving the local and national interests of the current system intact and more cost effective."
-- Louis Matherne, President, XBRL International; Director of XBRL, AICPA
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