In U.S., No Simple Answers ; Most Agree the Tax Code Is Absurdly Complex, but How to Fix It Is Disputed

By Aenlle, Conrad De | International Herald Tribune, March 25, 2013 | Go to article overview

In U.S., No Simple Answers ; Most Agree the Tax Code Is Absurdly Complex, but How to Fix It Is Disputed


Aenlle, Conrad De, International Herald Tribune


Most agree that the tax code is absurdly complex, but how to fix it is disputed.

If there is widespread agreement on anything in Washington, it is that the tax code is absurdly complex and should be simplified.

There seem to be loopholes and exemptions to each of the myriad rules, regulations and formulas, and each loophole seems to have a loophole of its own that brings taxpayers back full circle and forces compliance with the original provision.

But while few dispute that tax reform is a good idea, it is an idea that policy specialists doubt will be acted upon soon. Overhauling such a byzantine compilation of laws and procedures may be just too difficult to achieve, they say, and some leaders whose support matters most for success may lack the will to see it through.

"It's hard to believe that anything much is going to happen" in coming months, said Michael Graetz, a professor at Yale University Law School who had policy-making roles in two presidential administrations. Representative David Camp, Republican of Michigan, who is chairman of the House Ways and Means Committee, the body responsible for originating tax laws, "has been working on tax reform and is anxious to press ahead," Mr. Graetz said, "but it's not at all clear that the leadership in the House or Senate has much enthusiasm for it."

One niche for which there is thought to be a fighting chance of significant change is corporate taxation. After rate cuts in Japan take effect in April, the United States will have the highest corporate tax rates in the world, factoring in state and federal liability. Republicans and Democrats agree that because American businesses are taxed at U.S. rates even on foreign profits, they suffer a competitive disadvantage abroad.

But a quirk of the tax code allows American companies to defer paying tax on foreign profits until the profits are brought home. That leads companies to structure their affairs so that they record more profits abroad, particularly in lower-tax countries, temporarily denying revenue to the Treasury.

The practice could be curtailed, a study of U.S. multinationals published in January by the Congressional Research Service suggests, by cutting the 35 percent top corporate rate.

"Reducing this rate would decrease the incentive to shift profits by reducing the tax savings such behavior would produce," the study concluded.

Companies shift profits "to take advantage of the differential between the U. …

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