Tags: Malpass | Rule | Tax | Reform

Former Reagan Adviser Malpass: Rule Book Blocking Tax Reform

Tuesday, 10 Apr 2012 07:56 AM

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Encima Global president and former Reagan adviser David Malpass says the legislative process needed to push a tax bill through Congress and to the president for signature is stopping tax reform in its tracks.

"The normal approach to tax reform is for the President, working through the Treasury Department, to develop and propose a basic framework for tax reform," Malpass writes for Forbes.com. "This was the approach used successfully in passing the 1986 Tax Act ... and the 2003 tax rate cut.

"Both of these reforms stimulated growth and jobs, and led to financial market gains."

Editor's Note: Wall Street Insider: The System Is Rigged

Tax reform in 2013 is even more important for growth but faces larger procedural obstacles than the earlier reforms, says Malpass, in part because an increasing portion of the tax code is temporary — existing tax rates are often scheduled to increase after one or two years in order to artificially hold down the 10-year deficit.

"To keep the tax rate from rising automatically, Congress and the President then have to agree every one or two years on a complicated, hard-to-pass 'patch' or 'fix' to hold the tax code together for another year," Malpass says.

"Over the years, the theoretical cost of the fix has escalated into the hundreds of billions of dollars, including the alternative minimum tax, the 'doc' fix to pay for normal Medicare costs, the tax credit for research, the capital-gains and dividend tax rates, and the 2003 Bush income tax rates, many of which have bipartisan support."

Such short-term rolling tax rates blocks constructive tax reform because, under Washington's current rule book, real reform would have to acknowledge the full 10-year cost of a given set of policies rather than hiding it, Malpass says.

"A pro-growth, pro-jobs starting point for tax reform would be to make permanent many of the current annual tax fixes in order to reduce the uncertainty in the tax code and create a more honest baseline for tax reform," says Malpass.

"Since these provisions are extended automatically anyway, it would greatly enhance the prospects of tax reform for these annual tax cuts to be set aside and fixed in a one-time process that would stabilize the tax code."

According to the Council on Foreign Relations, the United States current 35 percent statutory corporate tax rate is the highest in the world, which many analysts say overburdens businesses with compliance and planning costs while reducing federal revenues at a time of rising debt.

Editor's Note:
Wall Street Insider: The System Is Rigged

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