SFC Blank Slate Project 2013 - Senator Cantwell's Suggestions

Written by Annette Nellen | Posted in Specialty Tax Incentives • Tax Policy • United States

As noted in my 9/9/13 post, I’m going to summarize and analyze proposals senators offered to the Senate Finance Committee, and that the senator made public. In no particular order, the first set of suggestions I’m commenting on are from Senator Cantwell (D-WA) (7/26/13 letter). Senator Cantwell is a member of the Senate Finance Committee.

Explanation
Key tax policy principles:
Equity and fairness	Noted in terms of allowing all itemizers to permanently deduct state income tax or sales tax.
Simplicity	Mentioned, but nothing specific.
Neutrality	New or modified tax incentives would affect taxpayer behavior.
Transparency	Not mentioned.
Tax gap minimization	Not mentioned.
Specific tax preferences to be repealed	None specified, but perhaps implied in suggestions to make the tax law more fair and to have appropriate transition rules.
Specific tax preferences to be retained	Make choice of deducting sales tax rather than income tax permanent.
New tax provisions suggested	1) “tax credits to promote apprentice programs and better train the American workforce” 2) “new ways to promote retirement savings”
Other tax items	1) Create a Financial Transactions Tax equal to “1/100^th of a percent per trade.” 2) Sufficient funding for IRS. 3) Appropriate transition rules.
Non-tax suggestions	1) End sequestration. 2) Health care reform to “focus on better outcomes for health care services, community based care, and transparency in drug pricing.” 3) Carbon auction system as stick along with carrots to encourage energy innovation.
“Theme”	Innovation and job growth to improve the economy and budget.

Commentary: Senator Cantwell wants tax incentives to better train the workforce. That might also make the system less fair and more complex. On the other hand, it could address current inequities that favor college education rather than other forms of education, such as the apprentice programs Senator Cantwell suggests. Why not have the Hope Scholarship Credit or American Opportunity Scholarship Credit apply to any education following high school? But why not leave these items outside of the tax system and let the system already in place of Pell and similar grants work? Those system already measure financial need (the FAFSA form) and can deliver the benefit when needed – when tuition is due (rather than when you get your tax refund).

Looking for cost savings is always a good idea, so health care reform looking at costs savings is a good idea. Appropriate funding for the IRS to do its job is wise. Funding and new reporting obligations that can help reduce the $450 billion annual tax gap would help achieve revenue neutrality in tax reform and make the system more equitable. A carbon auction system is worth exploring, particularly if this will be more common throughout the world, but I don’t think it has to be part of tax reform (unless a carbon tax is going to be considered). I’d wait on the Financial Transactions Tax. Fix the federal tax system first. Then, if revenue is still needed to help pay down the debt, explore new revenue options, but weighed against raising the income rate or that of other existing taxes as appropriate.

Bottom line – I like the focus on innovation and job growth beyond only thinking about a college education. On her website, Senator Cantwell states: “In the Information Age, we need a tax code that rewards efficiency and innovation.” As you can guess from the name of my blog (21st Century Taxation), I like the recognition that the world has changed and our tax system needs to be updated to reflect today’s ways of living and doing business.

I’d like to see specifics on deductions, exclusions, credits and special rate structures to reform (including eliminate). For example, why not cut back the expensive exclusion for employer-provided health care and use some of those funds to improve the health care system for everyone?

What do you think?

In accordance with Circular 230 Disclosure

Annette Nellen

Annette Nellen, CPA, Esq., is a professor in and director of San Jose State University’s graduate tax program (MST), teaching courses in tax research, accounting methods, property transactions, state taxation, employment tax, ethics, tax policy, tax reform, and high technology tax issues.

Annette is the immediate past chair of the AICPA Individual Taxation Technical Resource Panel and a current member of the Executive Committee of the Tax Section of the California Bar. Annette is a regular contributor to the AICPA Tax Insider and Corporate Taxation Insider e-newsletters. She is the author of BNA Portfolio #533, Amortization of Intangibles.

Annette has testified before the House Ways & Means Committee, Senate Finance Committee, California Assembly Revenue & Taxation Committee, and tax reform commissions and committees on various aspects of federal and state tax reform.

Prior to joining SJSU, Annette was with Ernst & Young and the IRS.