Tax Edge

By Paula Cruickshank, TaxEdge News Staff

President Obama has tasked the Economic Recovery Advisory Board headed by former Federal Reserve Board Chairman Paul Volcker with considering measures to overhaul and simplify the current tax system. A tax reform task force, composed of four advisory board members, will make recommendations on tax simplification, closing tax loopholes, and reducing tax evasion and "corporate welfare," according to Office of Management and Budget (OMB) Director Peter Orszag.

To simplify the tax system, the board will examine ways to unify, streamline or make more consistent several existing tax credits, including the making work pay credit, the earned income tax credit, and the child tax credit, Orszag noted. In addition, the task force will examine ways to aggressively reduce the tax gap, now totaling over $300 billion a year, he said.

Off-shore tax havens, transfer pricing and other complex international transactions are among the areas that will be scrutinized by the Volcker board, Orszag said. Tax-gap revenues could help to fund tax-cut provisions, including an extension of the making work pay tax credit, he added. Continuing funding for the tax credit after 2010 is a particular concern to the White House since its budget proposal to use cap-and-trade revenues is no longer considered to be an option and the Senate budget blueprint does not include the middle-class tax cut championed by Obama.

Orszag, in a press session on March 25, said none of the tax-reform proposals should increase taxes in 2009 or 2010, nor raise taxes on families earning less than $250,000 a year. The economic advisory board will make its recommendations to the president by December 4, 2009. Board members on the task force are: Laura D'Andrea Tyson, dean, Haas School of Business at the University of California at Berkeley; Martin Feldstein, George F. Baker Professor of Economics, Harvard University; William H. Donaldson, former chairman of the Securities and Exchange Commission; and Roger W. Ferguson, Jr., president and CEO, TIAA-CREF.

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Posted April 2, 2009.