House Ways and Means Prepares for Series of Tax Reform Hearings

House hearings on fundamental tax reform will begin Jan. 20 with the testimony of National Taxpayer Advocate Nina Olson, the House Ways and Means Committee announced Jan. 19.

The hearing is the first in a series that will examine both the individual and corporate sides of the Internal Revenue Code. Lawmakers and administration officials have said they would like to see the code simplified and the corporate tax rate reduced.

Olson will begin her testimony by declaring the tax code a “mess,” and noting that, since the 1986 overhaul, the code “has become an ever-expanding patchwork of discrete provisions, often with little logical connection, and it has become unreasonably difficult for taxpayers to understand.”

According to text of Olson's written testimony obtained by BNA, she will tell lawmakers that tax reform “must be a priority” now and that a transparent code will be beneficial both to taxpayers and tax administrators within the Internal Revenue Service.

Olson's written testimony also says that, if marginal tax rates are to be lowered “substantially” and the overall tax liabilities on average are to remain unchanged, then most taxpayers will have to forfeit tax breaks elsewhere in the code. “There is simply no free lunch,” Olson will say, while acknowledging that taxpayers want simplification and will support it because lower rates also will offset the loss of tax expenditures.

Olson to Urge Reform, Revenue Separation

Although the taxpayer advocate does not take a position on fiscal policy issues or marginal tax rates, Olson will urge lawmakers to consider addressing tax reform and revenue levels separately, saying doing so will give tax reform a “better chance to succeed.”

Olson's written testimony acknowledged the “widespread recognition” that the deficit must be reduced, but she wrote that “if we attempt to solve those issues through tax reform, we will never achieve structural tax reform.” Instead, she suggested that lawmakers enact tax reform on a revenue-neutral basis and then decide on the appropriate revenue levels and adjust the tax rates.

Olson will be followed by Robert McDonald, the chief executive officer and president of Procter & Gamble (testifying on behalf of the Business Roundtable); Warren Hudak, president of Hudak and Company; Kevin Hassett, senior fellow and director of economic policy studies at the American Enterprise Institute; and economist Martin Sullivan.

House Ways and Means Committee Chairman Dave Camp (R-Mich.) announced Jan. 13 that he will hold a hearing to examine the current tax structure as the first part of efforts to begin working with the Obama administration on tax reform.

Democratic Subcommittee Slots Awaiting Approval

The House Democratic Caucus was expected to meet late Jan. 19 to approve subcommittee members for the Ways and Means Committee, with the most noticeable fact being the absence of Rep. Charles Rangel (D-N.Y.) from any ranking membership.

Rangel, who was chairman of the full committee before stepping aside in early 2010 because of his then-mounting ethics-related problems, will serve as an ex-officio member of all subcommittees.

Joining ranking member Richard Neal (D-Mass.) on the Select Revenue Measures Subcommittee will be Reps. John Larson (D-Conn.), Shelley Berkley (D-Nev.), and Mike Thompson (D-Calif.).

Rep. John Lewis (D-Ga.) will continue to be the top Democrat on the Oversight Subcommittee.

The complete text of this article can be found in the BNA Daily Tax Report, January 20, 2011. For comprehensive coverage of taxation, pension, budget, and accounting issues, sign up for a free trial or subscribe to the BNA Daily Tax Report today.