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.
For the past two weeks, WebCPA has posted new comment collections each Friday. The series wraps up this week, with thoughts from, among others, new AICPA chairwoman Leslie Murphy, CCH Tax and Accounting president and chief executive Kevin Robert, president of the Association for Accounting Marketing Gordon Lee, and the executive directors of the New York State and Texas societies of CPAs.
"I would create a tax system that would definitely be simpler than our present system. Compliance and enforcement would be greatly enabled and less costly with a simpler system. While I do not have all the details designed, the tax system likely would have the following attributes:
"A hybrid model: Despite my interest in simplicity, I believe that to remain revenue neutral, we will need to build a hybrid model consisting of income tax and possibly a value-added tax or an individual consumption tax. The hybrid model will help to preserve tax collections for the government, allow for possible reduction in current income tax rates and provide the flexibility to avoid funding shortfalls in the health care arena and the Social Security System.
"Social Security Reform: I would incorporate Social Security reform into the overall reform of the tax system. While reform of our existing Social Security system does not appear likely as a stand-alone issue, the system must change to provide long-term security to millions of Americans who depend on it for their future financial support.
"Alternative Minimum Tax: I would eliminate the alternative minimum tax, because the tax is complicated, difficult to anticipate and impacts many who were not intended when it was designed originally.
"Foreign Tax Credit: I would greatly simplify the foreign tax credit allowing for simple offsets for taxes paid in another country. Reform is increasingly necessary as businesses increase their global activities, causing excessive complication and cost with reporting the activity.
"Certain Tax Deductions and Credits: I would continue to provide tax deductions or credits against taxes for certain payments, including tax-deferred savings for retirement, charitable contributions, and home-ownership incentives. Credits for research and development expenditures also would be allowed to encourage innovation.
"Filing Process and Deadlines: I would design an entirely electronic system. Allowable deductions and credits would be reported directly to the Internal Revenue Service to accommodate electronic comparison to filings.
"I also would change from a single set of deadlines based on type of tax return and year end. I would make filing dates for individuals dependent on birth date or some random assignment throughout the year. Business entities also should be assigned different year-ends, but criteria would have to be established to consider the entity's natural business cycle, coordinate appropriately with individual filing deadlines, and ensure the timing of the government's revenue stream.
"This system would be much more efficient and help to alleviate workload compression in the profession and at the IRS, leading to improved quality of tax filings and enhanced enforcement activities."
-- Leslie Murphy, 2005-06 Chair, AICPA
"No tax system is perfect. Objectives must be prioritized, because no tax plan can accomplish everything. The top priority of a tax system should be to establish as simple a method as possible for generating required government revenue. And the system must not only be simple but it should also be extensible -- bridging federal, state and local needs -- so that future changes to a federal system, for example, do not further exacerbate the differences between the various state systems, causing more complexity between various jurisdictions."Many proposals have been presented by tax professionals and government representatives. These include a flat tax, a retail sales tax, a value-added tax and a return-free tax system, among others. The most effective tax system --simple, progressive and providing sufficient revenue -- is likely to be a combination of a relatively simple income tax with fewer rates, credits and exemptions than currently exists."
-- Kevin Robert, President and CEO, CCH Tax and Accounting
"A simpler system that didn't require a Ph.D. to fill out a tax return. This needs to be balanced with the clear public policy role that the tax system must continue to serve."
-- Colleen Cunningham, President and CEO, Financial Executives International
"I'm a long time adherent of the flat tax in Canada. If I had a clean slate, I'd meld the personal and corporate income tax structure into an integrated flat tax. While I am not an accountant, I believe that this would not only bring in more money, it would also lower overall rates and be a major stimulant to the economy. The government must also do more to encourage more Canadians to save for their own retirements and changes to the tax system can certainly help."As for the U.S., I am staggered by the amount of red tape in the American system. I read recently that the Federal Register of regulations is now 75,676 pages, with an additional 4,266 regulations in the legislative pipeline. That's an unfathomable burden to imagine, and as a taxpayer and a business in America, I would take it to task with the politicians at municipal, state and federal levels. A fresh start would be to eliminate the overlap and ruthlessly streamline the paperwork that's choking American business."
-- Gordon Lee, President, Association for Accounting Marketing
"I support the philosophy of the current graduated tax system. However, it could be simplified and there are some issues that need to be addressed, such as deduction loopholes and the growing problem with the AMT."
-- Erik Asgeirsson, President and CEO, CPA2Biz
"If I were to set up a new tax system, I would lean towards a simplified income tax system that most people would easily understand. The system would be set up to generate the funds that are needed to run government, but would probably encourage savings and investments for all individuals."
-- Ernest Almonte, Auditor General, Rhode Island
"The New York State Society of CPAs had the privilege of having David Lifson head up a tax reform study for us. He and the Committee on Practical Reform of the Tax System developed a proposal for an entirely new tax system called the SET Tax, which would make the current system so transparent that any American citizen could understand it."It's a greatly simplified income tax, devoid of unnecessary complexity and alternative tax systems. Congress would select a politically acceptable, economically appropriate single rate to tax all gross income for both individuals and business, and then use only straightforward exclusions of its choosing to accomplish additional public policy goals. I commend it to you. "
-- Louis Grumet, Executive Director, New York State Society of CPAs
"While it is an intellectually intriguing question, the reality is that a tax system does already exist and it is one that is greatly affected by political and social debate and lobbying. That is why it is as complicated as it is."But in this fantasy scenario, I would choose a system that was less complex and one that did not penalize people who save money. I would lean toward some kind of flat tax at the lowest rate possible, as I think it would actually increase government revenues over time and stimulate production.
"To me, the key is to get the tax rate as low as possible to reduce the amount of government spending. I agree with Milton Friedman - the problem isn't with taxes, it is with the government's spending. Government spending now amounts to about 40 percent of national income, and probably gets close to half if you include the indirect costs of regulation.
"I think the bigger danger we face is that government spending will continue to go up if left unchecked. So the best way to control it is to limit the amount of income received by the government."
-- John Sharbaugh, CEO and Executive Director, Texas Society of CPAs
"A graduated income tax system that has very limited deductions and does not attempt to implement social reform, environmental protection or economic stimulus through the tax law. All the tax system should do is raise the money necessary to operate the government. A graduated income tax is the fairest (least regressive) method of raising that money. Once a fair and simple revenue source is in place, the emphasis could properly be placed on how that money is spent."
-- Michael Weatherwax, 2005-06 Chair, National Association of State Boards of Accountancy
"The current U.S. system -- a combination of income, property, sales, excise and other taxes -- allows for tremendous creativity for fundraising for the myriad taxing authorities. However, this creativity has also led to excessive complexity. The goal of simplicity is one that should be placed at the highest priority. We should be grateful for the fact that our culture supports taxes as legitimate and useful, and that the vast majority of citizens comply and participate."
-- Doug Burgum, Senior Vice President, Microsoft
"I believe any tax system fundamentally must support our economic growth and the budget of the U.S. government, and enhance the long-term prosperity of America's people and businesses. It must be flexible enough to evolve to meet the changing requirements of our economy domestically and globally."While for some the popular answer may be a flat tax, I think any tax system would need to include many of the same elements our system has today: thresholds, varying tax rates and exclusions. Can we simplify in specific areas? Certainly. But overall, considering the broad types of income and expense sources that exist, and how we've learned that strategic tax incentives can be a very strong stimulator of economic growth, my proposed tax system would probably be very similar in nature to that which exists today."
-- Mike Sabbatis, Vice President of Sales and Marketing, CCH Tax and Accounting
"I'd have filing throughout the year based on the taxpayer's last name."
-- Dana "Rick" Richardson, CEO, Richardson Media & Technologies
"Almost anything but an income tax. Originally intended for the ultra-rich, income taxes (including payroll taxes) are a significant hindrance to savings and wealth accumulation by those who can afford it least. Perhaps a consumption tax would make more sense."
-- Michael Young, Partner, Willkie Farr & Gallagher
"A consumption-based system."
-- Timothy Christen, CEO, Virchow Krause & Co. LLP
"Personally, I see great value in a broad-based tax on income, defined all-inclusively. I would simplify what we have and remove provisions that create undue complexity. I believe the lack of public trust in our system now is that it has become so complex and burdensome that the certainty component, which is crucial to the acceptability of any tax, has been eroded. But a broad-based income tax, in which there is robust horizontal and vertical equity, offers much."I would repeal the payroll tax and put the Social Security system on budget. I would not provide an incentive for capital gains other than inflation adjustment of asset basis. I would integrate the corporate and individual income taxes. I would retain the estate and gift tax at a rate of tax equal to the highest individual rate, and provide an inflation-adjusted exemption that shields $5 million per taxpayer. I would increase the standard deduction to insure that the bottom 20 percent of taxpayers pay only 10 percent tax. I would cap the top rate on both corporations and individuals at 30 percent. I would repeal the alternative minimum tax on both corporations and individuals."
-- Thomas J. Purcell, Associate Professor of Accounting and Professor of Law, Creighton University
"A more simplified tax system that better complements state and federal requirements."
-- Mark Schlageter, Executive Vice President and COO, Thomson Tax & Accounting
"A tax system should really be a method by which the government controls processes to finance its spending. However, from my years working in the accounting industry I realize that it is more practical to accept that any tax system is interwoven with the fiscal policies of every company in the country. I cannot pretend to have a depth of understanding on how the government can, and should, use the taxing process to shift wealth, provide subsidies, or reward (or punish) industries."For example, I worked on a direct mail campaign regarding the recently passed Internal Revenue Code Sec. 199 regarding repatriation, and the push to reward companies that re-invest in the United States by realizing that the use of tax savings. It was an interesting experience for me and I appreciated how the tax system can be used to generate and spur commerce and industry.
"I try to consider what would happen if the estate tax was eliminated. This is another topic which often results in some marketing communications. Perhaps the amount of money currently gifted to charities would be reduced (as there would be no incentives from a tax perspective to give money away) and the shift in wealth would be even more dramatic because wealthy families would retain so much more income on the death of anyone with a reasonably sized estate. Would this create a stronger upper class and less of a middle class in the future?]
"Other alternative systems that are discussed periodically include the VAT, as used in Europe, which might have a negative impact on the very poor, as they would pay higher taxes based on the layers of additional taxes added by each vendor. The flat tax is also sometimes considered, and it might eliminate the need for some of the sophisticated calculations and could discourage illegal tax shelters and other havens that only the wealthy can take advantage of, but, on the other hand, there are many levels in any tax system to be considered beyond taxing personal wealth. There are corporate taxes, sales and use tax, estate tax, payroll tax, etc. - all bound together. With the impact of commerce conducted over the Internet still in its infancy, and a global economy taking root, it is impossible for me to predict what a modern tax system should look like."
-- Sally Glick, Chief Marketing Officer, J.H. Cohn
"A tax system in the U.S. has to be complex, since we live in a complex society with a complex economy. In my opinion, the system in place now is quite good, given those complexities. Even if the current system did not exist, I would opt for the creation of a similar one with a few changes to eliminate areas which add complexity without achieving the intended results. For example, I would change the alternative minimum tax so that it would apply to a much smaller percentage of taxpayers, in accordance with its original intent."
-- Richard Caturano, President, Vitale, Caturano & Co.
"For income tax, I would use a simplistic flat tax system with no tax paid for incomes below a certain level, most likely $20,000, and no tax on incomes above a certain level, most likely $400,000 with a probably rate near 20 percent. Forecasts for needed revenue for government operations and the number and level of income of people working would establish the initial rate."This would let relatively poor people keep a large percentage of their income, and once high-income individuals exceeded the ceiling, they could keep what they make as incentive. Many people at this level and above find loopholes to minimize their tax payments under the current system. I would exempt tax on Social Security, and most sources of retirement income as well.
"This system would simplify collection and reporting. I would fund state government and schools through sales and property taxes at the state level. I would not allow loopholes for special interest groups, but would consider exemptions for certain catastrophic personal conditions like weather losses or health expenses. With these approaches, the free market forces would drive tax and expenditures."
-- Randy Johnston, Executive Vice President and Partner, K2 Enterprises
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