A CPA Journal Panel Discussion on the SET Tax Proposal and Report of the President's Advisory Panel an Federal Tax Reform
In 2005, the NYSSCPA established a special Committee on Practical Reform of the Tax System, chaired by David A. Lifson and comprising Joseph L. Charles, Alan J. Dlugash, Robert Goldstein, Laurence Keiser, Leon M. Metzger, Stephen A. Sacks, and Maryann M. Winters. The committee was charged with developing a policy for the reform of the U.S. tax system, and its work culminated in the SET Tax, a simple, exact, and transparent alternative to the current tax system. The paper was adopted as an official policy position of the NYSSCPA, and it appears in its entirety in this issue, beginning on page 14. Since its adoption, the proposal has been discussed in interviews with CNBC, "ABC World News Tonight," NY1, Bloomberg News, Forbes, Fortune, Newsweek, BusinessWeek, the WaW Street Journal, the New York Times, the Washington Post, the Financial Times, and Accounting Today.
In the panel discussion that follows here, committee members explain their work on the SET proposal and their reactions to the Report of the President's Advisory Panel on Tax Reform, released in November 2005 (Analyzed in a separate article on page 42). The panel discussion, on November 18,2005, also included the chair of the NYSSCPA's Tax Division Oversight Committee's Tax Policy Subcommittee, Richard Hecht, and was moderated by Louis Grumet, NYSSCPA Executive Director and Publisher of The CPA Journal.
A Measuring Stick for Tax Reform
Louis Grumet: Recently, the Panel that was appointed by President Bush to look into tax policy and the entire tax system completed its task, announcing two alternative proposals: the Simplified Income Tax Plan [SIT] and the Growth and Investment Tax Plan [GIT]. The provisions for individual income taxes are similar, but they differ significantly in their treatment of dividend, interest, and capital gains income, as well as the treatment of businesses. The Panel's conclusions would represent a significant change to the Tax Code, but I leave it to this group to discuss whether those changes would be good or bad, fundamental or incremental in nature.
Most of the people sitting around this table spent months developing a measuring stick against which to view those proposals. The NYSSCPA's Committee on Practical Reform of the Tax System called the resulting proposal the SET [Simple, Exact, Transparent] Tax. What do you think of the conclusions the Presidential Panel came to, and how do they compare to the conclusions this committee came to?
Laurence Keiser: I think to get to this type of tax reform the Presidential Panel had to first conclude that a consumption tax or a VAT [value-added tax] was not going to work. At that point, they decided to focus on changing and simplifying existing law.
Grumet: Why wouldn't a consumption tax work?
Robert Goldstein: Because it's terribly regressive. In 2001, Pamela Olson, who was then Deputy Assistant secretary of the Treasury for Tax Policy, did a good analysis of the varying tax systems. The analysis looked at the existing tax system, as well as alternatives, including consumption taxes like the "traditional" flat tax, a national sales tax, and a VAT, which is a sales tax of sorts. Olson demonstrated that every country in Europe that had a value-added tax also had an income tax because the VAT rate became extraordinarily high if it was to replace the income tax. I think her analysis also clearly demonstrated the regressive nature of consumption taxes. It seems common sense that somebody making several million dollars a year spends a lower percentage of their income on necessities than someone making $40,000 or $50,000 a year. I think this committee-and the President's Panel-therefore came to the conclusion that consumption taxes alone wouldn't work.
Alan J. Dlugash: Although I agree that we came to the conclusion that reform based on the current income tax was the way to go, it is not clear to me-and I don't think it was clear to the President's Panel-that consumption taxes may ultimately turn out to be better. …