The Theory and Practice of Tax Reform
On January 7, 2005, President Bush-flush with recent electoral victory- issued an Executive Order creating the President’s Advisory Panel on Federal Tax Reform. The Order instructed the bipartisan Panel to recommend one or more plans for major reform of the federal income tax. The president did not, however, permit the Panel to begin its work on a blank slate. Instead, the Order required (among other things) that the Panel’s proposals be revenue-neutral, simpler than current law, “appropriately progressive,” and supportive of homeownership and charity. Although the Order contemplated that the Panel might offer more than one tax reform plan, it required that at least one option “use the Federal income tax as the base for its recommended reforms. The Panel went to work promptly, held several hearings around the country, and produced a Report (not quite on schedule) in November 2005. With Congress having difficulty enacting any legislation and with its limited legislative capacity focused on issues more pressing than revenue-neutral tax reform, the Report was widely viewed as dead on arrival. The Report is, however, a substantial and thoughtful piece of work, and when Congress is finally able to turn its attention to tax reform sometime in the next few years, it can and should look to the Report for ideas—especially since the Report’s recommendations were largely driven by the Panel’s determination to repeal the alternative minimum tax (AMT), and repeal (or at least major reform) of the AMT is almost certain to be an issue of great legislative interest in the not-too-distant future. Part I of this Review outlines the basics of the two proposals that the Panel presents in the Report. Part II evaluates some of the proposals’ details. Finally, Part III concludes with two comments on the place of the Panel’s Report within the long-standing tax reform debate.