Appearing before a subcommittee of the Senate Appropriations Committee to discuss FY 2012 Treasury Department funding, Secretary Geithner said the Administration is ready to get the ball rolling on corporate tax reform, telling Senators, “I’m actually quite optimistic we’re going to be able to start that process with a very strong pro-investment, pro-growth, pro-competitiveness proposal.” Below is the video of his testimony (Discussion of tax reform can be found at 25:28).


There were few specifics on when, or in what form the proposal would take, but the reported goal of the Secretary is said to be lowering the corporate rate to the high 20s and broadening the base.

As before, the Administration appears intent on moving just corporate reform, and in a budget neutral fashion. In all likelihood, this means the loss of business deductions for S corporations and other flow-through, at the same time rates on those businesses are going up, not down.

Broadening the tax base while raising rates on more than half the private sector employment base is not going to make the US more competitive. To increase job creation and investment, tax reform needs to assist all employers, regardless of how they are structured, by addressing both the individual and corporate side of the code.

More on the Ryan Budget

By now, we’re aware that the Ryan Budget aims to drop individual and corporate tax rates to 25 percent and the end product proposes to be revenue-neutral, what’s still unknown about this plan is what specific expenditures will have to be sacrificed to make the math work.

A deeper dig reveals extensions of the Bush tax cuts, the 2010 estate tax provision, adjustment of the AMT exemption, a 20% deduction in income to small businesses, and repeal of the healthcare bill and associated tax increases including the new 3.8 percent tax on investment income, are all in the mix as well.

With one eye on the base broadening plan tailored by the Fiscal Commission last year, we’ll see if this story gets the opportunity to get fleshed out any further. Many see this proposal as symbolic at this point, especially since the congressional budget just sets the broad tax and spending numbers, and does not dictate the details. Nonetheless, its nice to see somebody looking at comprehensive reform as opposed to just corporate reform.

The House Budget Committee is marking up the bill today, and it may reach the floor next week.

Reform Insights from 1986

This morning’s roundtable meeting of the Joint Tax Committee featured a couple of key veterans of the 1986 tax reform former House Minority Leader Dick Gephardt and the ubiquitous former Treasury Secretary James Baker.

Both past and current tax writers each expressed the sense that comprehensive action to reform the tax code is now past due, and that the political efficacy to realize that effort is present. Yet, aside from a brief mention of repatriation from Senator Hatch and agreement from both panelists that it deserved a closer look, the discussion was mostly on approaches and tactics, and light on specifics.

Both Baker and Gephardt urged reform on a revenue- and distribution-neutral basis, and urged members to not let the politics of the budget and debt debate interfere with the job of revising our system of taxes.

Exactly how one “reforms” the tax code while not changing the distribution or the amount of collections is entirely unclear. Moreover, to move these two efforts forward on parallel tracks before a presidential election will certainly require historic discipline on both sides of the aisle.