Tuesday, May 25, 2010

Another Tax Simplification Commission?

How many tax simplification commissions does it take to recommend tax simplification if a tax simplification commission could simplify taxes?

The newly-installed Conservative-Liberal Democrat Coalition in the United Kingdom has announced the establishment of an Independent Office of Budget Responsibility in order to depoliticize estimates of revenue, expenditure, and deficits. The coalition will also create a new Office of Tax Simplification to suggest tax reform measures.

Most Americans are familiar with tax reform commissions. These are standard fare in most presidential administrations. Some serve up good ideas, only a few of which are put into law. Tax reform and simplification commissions are usually a way for presidential administrations to avoid dealing with the difficult task of taking away tax benefits to achieve real reform, i.e., base broadening and lower rates.

The United Kingdom has joined this exercise. It, too, engages in the “kick the can down the road” principle of postponing meaningful tax simplification by assigning the task to a powerless office.

In October 2005, when the Conservative Party was in opposition, the Shadow Chancellor of the Exchequer established a Tax Reform Commission under the chairmanship of the Rt. Hon. Lord Forsyth. Its stated goal was to “provide recommendations to improve the economic efficiency, transparency, simplicity and fairness of the current tax system.” In February 2006 I gave evidence (testified) before the commission in the House of Lords, setting forth my views on how a flat tax would help achieve the shadow chancellor’s objectives. The commission issued a report to clean up of the tax system by broadening the base and lowering rates, a standard recipe for reform.

Given the coalitions’s pledge to reduce taxes on lower and middle income families, to raise capital gains tax to the same rate as ordinary income, and to maintain for at least the next year the 50 percent rate on high incomes, it will be difficult, indeed ever harder, for the new Office of Tax Simplification to improve on the 2005-06 Tax Reform Commission.

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