AICPA Releases Tax Reform Report

By Stephanie R. Myers

WASHINGTON—Making sense of tax reform is hardly a new phenomenon, but it’s a necessary one in a day and age when there are few absolutes regarding restructuring. On Oct. 17, the American Institute of Certified Public Accountants released a new report titled “Understanding Tax Reform: A Guide to 21st Century Alternatives.”

The AICPA said it developed the report in response to President Bush’s creation of the President’s Advisory Panel on Federal Tax Reform, which will be making recommendations to make the IRS Code more user-friendly. The panel is expected to announce their tax reform recommendations later this year.

The report’s aim, according to the AICPA, is to give officials and legislators a resource as they assess the recommendations of the panel and multiple suggestions on tax reform.

“The AICPA report describes three general approaches to tax reform and outlines efforts to improve the current system without changing its fundamental character as an income tax,” said Carol Ferguson, AICPA technical manager who worked on the study.

The first is a “bottom-up” approach that would modify the current laws rather than replace them. Proposals under this approach include generating “incentives for capital formation, accelerating depreciation, eliminating double taxation of corporate profits, and increasing tax-preferred savings options,” according to the report. The AICPA report also references, as a bottom-up reform option, the NYSSCPA’s own Simple Exact Transparent (SET) Tax proposal, which would tax all incomes over a generous threshold established by our political leaders, reduced by government-approved exclusions, at an economically appropriate and socially acceptable single rate. For more information on the SECT tax, see www.nysscpa.org/pdfs/set.pdf.

The second approach the report covers is fundamental tax reform, wherein a consumption tax system would replace the current tax system. The report details five major consumption tax alternatives: a retail sales tax, a credit-invoice value-added tax (VAT), a subtraction-method VAT, a flat tax system and a personal consumption tax.

The report also specifies a third approach to tax reform that would combine elements of an income tax system and a consumption tax. The nation’s current income tax, the report notes, is closer to this form than to a simple income tax system, because several forms of investment are subject to reduced tax rates, a zero tax rate or deferred tax recognition.

The intention of the report is also to provide clarity and guidance in issues involving tax reform, Ferguson said.

“The AICPA’s objective in issuing the report is to provide policymakers, CPAs and other interested individuals with a clear understanding of the issues and alternatives involved in federal tax reform,” she said. Ferguson added that the report doesn’t take a position on the “best possible solution” to reforming the income tax system.

In addition, the report covers the presidential panel and describes the panel’s charge to give advice on improving the IRS code. Following the release of the panel’s findings, Ferguson said, the AICPA will post follow-up comments on the tax reform recommendations.

“After the advisory panel releases its recommendations, the AICPA plans to analyze the recommendations and post new material on www.aicpa.org,” said Ferguson.

In 1995, the AICPA released a similar report on flat taxes, entitled “Flat Taxes and Consumption Taxes: A Guide to the Debate.”

“What the AICPA writes usually carries influence, because they’re close to the legislative branch,” said Bob Goldstein, liaison for the Society’s Relations with the IRS Committee.

The full text of the new tax reform report can be found at www.aicpa.org/taxreform.