Fundamentals of Taxation, before Reform

On April 15, 2008, the U.S. Senate Finance Committee held a hearing on the topic "Tax: Fundamentals in Advance of Reform", with four witnesses testifying. A replay of the hearing is available here for viewing online (through RealPlayer software).

This is the information, with links to the witness statements submitted, on the web page relating to that hearing.

Tax: Fundamentals in Advance of Reform

April 15, 2008, at 10:00 a.m.

in 215 Dirksen Senate Office Building

Member Statements:

• Max Baucus, MT

• Charles Grassley, IA

Witness Statements:

• Daniel N. Shaviro, Wayne Perry Professor of Taxation, New York University School of Law, New York, NY

• Michael Graetz, Justus S. Hotchkiss Professor of Law, Yale Law School, New Haven, CT

• Jason Furman, Director, The Hamilton Project, Brookings Institution, Washington, DC

• Robert Carroll, Vice President for Economic Policy, The Tax Foundation, Washington, DC

Opening comments by the Chair, Senator Max Baucus, set a tone for this hearing.

Tax reform sounds simple because it’s two little words.

But those two little words can represent a huge task for Congress.

It’s a task that requires a lot of cooperation and a lot of working together.

Today we’ll start to address that daunting task. We’ll start by discussing our current system. And we’ll discuss what has led to the current complexity.

Justice Felix Frankfurter wrote: “A tax can be a means for raising revenue, or a device for regulating conduct, or both.”

For example, you get a charitable deduction for donations, because Congress wants to encourage donations. The tax code also has a tax deduction for mortgage interest and real property taxes, because Congress wants to encourage home ownership.

And we’ll discuss how Congress has used the tax code for economic policy. A recent example of this is the economic stimulus package that Congress passed in February. In that case, Congress used the tax code to give a boost to the sagging economy.

The last time that Congress reformed the tax code from top to bottom was 1986. That year, we enacted a comprehensive reform bill that was meant to set us on a stable course.

Since then, however, Congress has passed tax bill after tax bill. And that has caused confusion and complexity for taxpayers and the IRS alike. * * *

Let’s see what it would take to get tax law back to being mostly a means for raising revenue, rather than mostly a device for regulating conduct.

And let’s start the process of making the tax law a little easier. * * *

Federal tax reform will, again, be an agenda item for the next Congress and for the next Administration.

“The hardest thing in the world to understand is the income tax.”
-- Albert Einstein