March 25 (Bloomberg) -- President Barack Obama is putting former Federal Reserve Chairman Paul Volcker in charge of a tax-code review aimed at closing loopholes, streamlining the law and generating revenue, budget Director Peter Orszag said.
Volcker, 81, who heads the president’s Economic Recovery Advisory Board, is being asked to take a look at the laws in an effort to rebalance the tax system.
Orszag said the review, given a deadline of Dec. 4, is being ordered to make recommendations on steps to simplify the code, built over the last 96 years, in ways that would reduce tax evasion and what he called “corporate welfare.”
“There are hundreds of billions of dollars in uncollected taxes each year,” Orszag said in a conference call. The Volcker board “will be examining ways of being even more aggressive on reducing the tax gap.”
The tax gap is the difference between the amount of taxes owed by taxpayers and companies and the amount collected. Orszag cited academic studies suggesting that the difference is $300 billion or more. That is “ a lot of money,” he said, adding that the administration is going to be “as aggressive as possible” in reducing it.
Obama made a tax overhaul part of his platform during the presidential campaign. One goal is to close loopholes that he said reward companies that move jobs overseas.
Task Force
Austan Goolsbee, a senior economic adviser to the president, will be named staff director of the task force, which will report back to Volcker, Orszag said. Members of the panel will include Harvard University’s Martin Feldstein, former chief economic adviser to President Ronald Reagan; Laura D’Andrea Tyson, a professor of economics at the University of California at Berkeley and former economic adviser to President Bill Clinton; Roger Ferguson, chief executive officer of Teachers Insurance & Annuity Association and a former vice chairman of the Federal Reserve; and William Donaldson, a former chairman of the Securities and Exchange Commission.
Orszag said “the only constraint” on the task force review is that there be no tax increases during 2009 and 2010, and that the proposals shouldn’t raise taxes on families earning less than $250,000 a year.
Past Attempts
Those constraints were reminiscent of several imposed by former President George W. Bush when he convened a national commission to consider tax reform in 2005 that was headed by former Senators Connie Mack, a Florida Republican, and John Breaux, a Louisiana Democrat. The panel unanimously agreed after 10 months to recommend scrapping or restructuring many popular deductions, saying the tax code was rife with “gimmicks.”
Many of its proposals, including cutting back tax incentives for homeownership for high-income people and the abolition of the state and local tax deduction, drew immediate opposition, and Bush never acted on the group’s recommendations.
The current task force is “open to consider any options of any sort that it sees fit,” Orszag said in the conference call. He said there was no revenue “target.” One of the goals is to do “a better job of collecting taxes that are owed.”
Obama plans to ask Volcker, Goolsbee and the panel for a package of recommendations to be on his desk Dec. 4. That would leave enough time for decisions to be made and included as proposals in the White House budget for fiscal 2011, to be submitted to Congress in February 2010.
Need for Overhaul
Mark Bloomfield, president of the Washington-based American Council for Capital Formation who worked on tax-reform bills in the 1970s and 1980s, said something needs to be done.
“Our current tax system cannot sustain the political and economic policy demands of today,” Bloomfield said. “It’s a 19th century buggy whip tax structure incapable of dealing with a 21st century economy and politics.”
Senate Finance Committee Chairman Max Baucus, a Montana Democrat, said the tax reform panel should “outline core principles” and leave to lawmakers the task of drafting a tax code overhaul. “We’re the Congress,” he said.
The top Republican on the tax-writing House Ways and Means Committee, Representative David Camp of Michigan, said the panel’s review “could be a positive -- there are a lot of inequities in the tax code.”
Restrictions
Camp said he was concerned that Obama placed restrictions on the group’s work, particularly shunning anything that would raise taxes on Americans earning under $250,000. While Camp said he isn’t in favor of tax increases, any advisory panel should be encouraged to consider a wide range of ideas. “If you’ve gathered a panel of experts, I want to hear what the panel says.”
Camp said a Dec. 4 deadline wouldn’t give Congress time to deal with the 2010 expiration of lower rates enacted in 2001. “I’d like to get it sooner than that.”
Obama has previously proposed raising additional revenue by taxing profit shares earned by private equity executives as ordinary income rather than at lower capital gains rates. In his budget last month, he also said he’d raise $200 billion over the next decade by increasing enforcement of tax laws on a company’s international income and by altering their ability to defer tax on foreign profits.
Budget Opposition
The tax-review plan comes as Obama faces opposition from his own party as he pushes for approval of a $3.6 trillion budget that Republican critics say would pile a mountain of debt on taxpayers for years to come.
The president scheduled a meeting with Senate Democrats on Capitol Hill today to persuade them to back his long-range plans for an overhaul of health care, energy programs and education to revive the U.S. economy.
House and Senate lawmakers are working on the president’s fiscal 2010 spending blueprint, with the economy in recession and the federal budget deficit widening. Lawmakers are already looking to trim some of Obama’s domestic programs.
Senator Kent Conrad, a North Dakota Democrat who heads the Budget Committee, has drafted a spending plan to generate a smaller deficit than Obama’s proposal, with next year’s shortfall totaling $1.2 trillion. Obama’s budget would generate a $1.4 trillion deficit next year, according to the nonpartisan Congressional Budget Office.
Conrad’s plan deletes an Obama budget proposal that called for $250 billion to aid the banking industry. His plan pledges to reduce the deficit from a forecast $1.7 trillion this year to $508 billion in 2014.
Tax credits, under the “Making Work Pay” program, which lead to $400 tax cuts for most workers and $800 for couples, would expire at the end of 2010.
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