The Honorable John W. Snow
Secretary of the Treasury
Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington, DC 20220
Dear Secretary Snow:
The United States faces significant tax policy concerns that may provide the impetus for undertaking federal tax reform at this time. Federal tax revenues will be affected in the near future as: (1) the "baby boomers" start to retire, placing additional burdens on already strained entitlement programs; (2) the 2001 and 2003 tax cuts expire, generating additional government revenues without corresponding examination of appropriate and fair tax burdens; and (3) the number of taxpayers subject to the alternative minimum tax grows exponentially, subjecting millions of taxpayers to unintended, higher levels of taxation. Further, the debate over the appropriate levels of federal deficits and national debt—and thus, the appropriate levels of federal revenues and spending—is far from settled. Finally, our country faces concerns about the need to make our tax law simpler, fairer, and more pro-growth.
The American Institute of Certified Public Accountants commends the effort of the President's Advisory Panel on Federal Tax Reform in undertaking the difficult task of analyzing alternatives and recommending options for reforming the Internal Revenue Code. The AICPA does not take a position on what is the best possible solution for reforming the federal income tax system. Rather, we view our role as fostering informed discussion by providing unbiased facts and analysis. To this end, the AICPA issued Understanding Tax Reform: A Guide to 21st Century Alternatives.
Tax reform will have a far-reaching effect on all Americans. As the Treasury Department considers the Advisory Panel's recommendations and other tax reform alternatives, the AICPA encourages the use of a framework for evaluating the current tax system and alternatives. As detailed in our recent report, the AICPA recommends employing the following, widely recognized indicators of good tax policy to analyze proposed changes. These ten guiding principles are equally important, and should be considered both separately and together when evaluating the current system and reform proposals.
1. Simplicity. The tax law should be simple so that taxpayers understand the rules and can comply with them correctly and in a cost-efficient manner.
2. Fairness. Similarly situated taxpayers should be taxed similarly.
3. Economic Growth and Efficiency. The tax system should not impede or reduce the productive capacity of the economy.
4. Neutrality. The effect of the tax law on a taxpayer’s decisions as to how to carry out a particular transaction or whether to engage in a transaction should be kept to a minimum.
5. Transparency. Taxpayers should know that a tax exists and how and when it is imposed upon them and others.
6. Minimizing Noncompliance. A tax should be structured to minimize noncompliance.
7. Cost-Effective Collection. The costs to collect a tax should be kept to a minimum for both the government and taxpayers.
8. Impact on Government Revenues. The tax system should enable the government to determine how much tax revenue will likely be collected and when.
9. Certainty. The tax rules should clearly specify when the tax is to be paid, how it is to be paid, and how the amount to be paid is to be determined.
10. Payment Convenience. A tax should be due at a time or in a manner that is most likely to be convenient for the taxpayer.