Although this page presents a highly simplified account of US taxation of corporations, in reality the Tax Code is an enormous mountain of nightmarish complexity. Politicians and businessmen alike want to fix it, and during 2005 President Bush convened a Tax Panel which took evidence and made proposals for root and branch change of the Code.

In September, the panel turned its attention to taxation issues facing America’s corporate and small business taxpayers during a meeting in Tampa, Florida.

In testimony from several academics and tax law experts, the panel heard how the current state of the US tax code has placed an unfair and disproportionate compliance burden on small firms, while growing global competition and sophisticated tax planning has allowed the corporate tax base to be eroded.

“Small businesses and self-employed taxpayers, in particular, are burdened by the complexity of our tax code and bear a substantial proportion of the estimated $125 billion in compliance costs,” observed tax panel chairman Connie Mack.

“These costs create a disproportionate burden, as studies have found that the smaller the business, the higher the cost of complying with the tax code per dollar of tax paid. We have heard from small business owners from all over America who have told us that the tax code should be reformed and simplified so that these entrepreneurs can spend less time doing paperwork and more time growing their businesses,” he added.

Meanwhile, Douglas Shackleford, professor at the University of North Carolina's Kenan-Flagler Business School noted that the US corporate tax base is “under attack from many directions”.

"Despite a decade of record profits, the corporate income tax never recovered to the levels of the less prosperous 1970s,” Shackleford stated in his testimony.

However, he observed that the decline of the corporate tax sector has been a global phenomenon, caused by growing international competition which has affected “all countries' ability to extract corporate tax dollars".

Other factors which have contributed to falling corporate tax revenues according to Shackleford include: the rise of the knowledge economy with its associated intangible assets; growth of ‘S Corporations’ and partnerships that “pass through” taxes; deductions from employee stock options; and the formulation of tax shelters.

Shackleford told the panel that the success or failure of future tax reforms can be measured by a corresponding decline or growth in the country’s tax planning industry.

"The key to reducing the need for tax accountants and lawyers is the elimination of differences in tax rates. Whenever you tax the same income differently, you provide an opportunity for a planner to reduce taxes," he observed.

In November the Panel recommended two options for simplification of the US tax code in its final report.

The two plans differed on the taxation of businesses and capital income. Although they use different approaches, the nine member panel of academic, legal and tax experts chaired by former Republican Senator for Florida Connie Mack said that the plans share a common goal of providing simple and straightforward ways for Americans to save free of tax while lowering the tax burden on productivity-enhancing investment by businesses.

The first plan, known as the Simplified Income Tax Plan proposed to:

The second plan, known as the Growth and Investment Tax Plan, proposed:

Under both plans, a number of further measures would be applied to individual taxation. Both proposals would allow every taxpayer to use a simple tax form, less than half the length of the current Form 1040.

The Panel also developed and considered a progressive consumption tax plan that would be administered using the infrastructure of the current tax system, but was unable to reach a consensus to include it as a recommendation. In addition, The Panel also discarded ideas for a value-added tax and a national retail sales tax.

Then Treasury Secretary John Snow was set to deliberate over the panel's proposals before making recommendations to President Bush as to which parts of the report, if any, to adopt.

"The recommendations that they (the tax panel) are presenting today will begin the dialogue that will help shape the future of tax policy," Snow said. "Their advice is the starting point, and I look forward to reading their recommendations and considering them carefully before I make a recommendation to the President based on the excellent work carried out by this Panel," he added.

In December, 2005, however, it transpired that the Bush administration was considering delaying the unveiling of a broad tax reform proposal until 2007 while the Treasury continues to deliberate on the recommendations of the tax reform panel, in order to avoid having to sell a controversial policy initiative during a mid-term election year.

The tax reform effort was also hampered by the fact that the assistant secretary for tax policy post has been vacant for several months, and one Republican source noted that there was insufficient manpower to churn out such an extensive and wide-ranging policy initiative.

John Snow said that government would not be held to an "artificial timetable" with regard to tax reform. "We will be looking hard at the whole question of tax reform," Snow told reporters in Washington D.C. "I don't want to foreshadow what we will be recommending to the president," added the Treasury Secretary.

In the spring of 2006, Snow said that his department remained "busy" working on proposals for simplification of the US tax code, despite the fact that the Bush administration appeared to have quietly shelved its tax reform commitments until 2007.

"At the Treasury Department we are quite busy working on tax reform, carefully considering the options provided by the Tax Panel," Mr Snow stated in response to a question posed in an online interactive forum known as "Ask the White House."

However, Mr Snow once again reiterated that the Bush administration was in no immediate hurry to forge ahead with tax reform. "Reform of the code is so important and the opportunity to really improve it only comes around every twenty years or so, so we want to be sure that we get it right. So at this time we must consider all options carefully and be sure that we are creating a more simple and fair tax system for all," he explained.

With mid-term elections approaching, it is now widely believed that moves towards serious tax reform will not begin in earnest for about a year. Indeed, Senate Finance Committee chairman Charles Grassley (R - Iowa) told Tax Council members earlier this month that the Treasury will not publish its long-awaited report on tax reform until the following year at least.

"From what I’ve heard, this won’t happen this year," stated Grassley.

In February 2008, senior House tax writer, Charles Rangel suggested that President Bush had missed his last opportunity to bring about meaningful and lasting reform to the US tax code with a budget that proposed "more of the same" tax cuts for the wealthy and spending cuts for essential entitlement programs.

"President Bush’s budget proposal is what we expected, but not what we need," the House Ways and Means Committee Chairman commented in response to Bush's 2009 Budget proposals.

He continued: "Rather than embrace his last months in office as an opportunity for bipartisan achievements on critical areas such as tax reform, health care and economic security, President Bush’s budget offers more of the same – expensive tax cuts for the wealthy, devastating cuts to Medicare, erosion of employer-based health care, retirement benefits, Social Security privatization and cuts to other social services."

While Bush could have been remembered for bringing about much supported simplification of the US tax code, something he pledged early in his presidency, Rangel believed that the administration’s legacy "will be written in red ink".

"In fact, this budget offers little or no mention of the pressing need to simplify our tax laws. Despite the attention the President gave this issue in the beginning of his term, we have not seen any concrete proposals or leadership on tax reform during Bush’s seven years in office. I would argue that it is not too late to do the right thing and reach out to Congress to begin serious discussions and restore equity and fairness to our tax code," Rangel stated.

"I have introduced a reform proposal that would cut taxes for more than 90 million lower- and middle-class families while also reducing the corporate tax rate to help keep our companies competitive internationally. I plan to continue this overdue discussion with hearings in the near future and I strongly urge this Administration to use its remaining time in office to be a partner, not a roadblock, toward establishing bipartisan consensus on tax reform," he added.

Tax reform issues also came to the fore in April 2008, when Senate Finance Committee Chairman Max Baucus (D-Mont.) kicked off a series of hearings on tax reform with a look at America’s income tax code, and announced plans for future hearings and roundtable sessions to prepare for a comprehensive overhaul of the tax code in 2009.

The Finance Committee has jurisdiction over US tax policy, and Baucus argued that this year’s look at America's tax system and reform options should produce a set of principles to guide the work of the Committee – and a new presidential administration – on tax reform next year.

“The Finance Committee needs to be informed and ready to go in January 2009, and that means we have to work hard now. We have to first understand pretty comprehensively how the system works today. We have to talk about the natural tensions in tax reform, and what actually happens to working families, to American businesses, and to our country’s global competitiveness depending on how we change the code,” stated Baucus, continuing:

“Even in a year where much won’t get done legislatively, we can build a framework of knowledge on which to review options and proposals when it’s time for tax reform."

President Obama's Tax Panel

In November, 2010, a bipartisan panel set up by President Obama to suggest ways in which the US federal deficit and debt can be reduced to sustainable levels issued wide ranging recommendations on tax and spending, setting the cat among the pigeons in Congress.

The report of the 18 member Commission on Fiscal Responsibility and Reform proposes to simplify the US tax code by reducing the number of tax brackets and lowering rates while repealing special interest tax breaks, broadening the tax base and improving tax compliance.

One tax reform option proposed by the Commission is to consolidate the tax code into three individual rates (8%, 14% and 23%) and one corporate rate (26%) and eliminate the alternative minimum tax (AMT). It would also eliminate all USD1.1 trillion in special interest tax breaks and use a portion of the savings to reduce the federal deficit, the other portion being used to lower marginal income tax rates.

Another tax reform option, inspired by proposals from Senators Ron Wyden (D- Oregon) and Judd Gregg (R - New Hampshire), would also repeal the AMT and establish three individual tax rates at 15%, 25% and 35%. This plan would triple the standard deduction to USD30,000 (USD15,000 for individuals), repeal the state and local tax deduction, and miscellaneous itemized deductions, and limit the mortgage deduction to exclude second residences, home equity loans, and mortgages over USD500,000, among other proposals.

On business taxation, the Wyden-Gregg plan would reduce the corporate tax rate to 26%, permanently extend the research and development tax credit, and eliminate and modify several business tax breaks, such as the domestic production deduction and the depreciation rules. Under this option, international tax reforms would would shift the US towards a territorial tax system.

The Commission's third option, known as the 'tax reform trigger' would mandate the tax law committees of Congress to develop and enact comprehensive tax reform by the end of 2012 and put in place an across-the-board “haircut” for itemized deductions and general business credits that would take effect in 2013 if reform is not yet enacted.

However, perhaps the most contentious aspect of the Commission's report is its call for deep cuts in government spending to hold down federal debt growth to USD3.8 trillion by 2020, about half of the USD7.7 trillion increase projected under current plans. The plan also envisages a steep fall in the federal deficit to less than 3% of the US economy from its 2010 level of almost 10%, or USD1.3 trillion. Government spending on defense, health care and social security programs would all be pared back substantially to achieve these goals.

The Commission's proposals are likely to further polarize opinions between Democrats and Republicans about how best to tackle America's fiscal crisis, as evidenced by reaction to the plan from Congressional leaders.

According to Rep. Nancy Pelosi (D - California), Speaker of the House of Representatives, the Commission's recommendations are "simply unacceptable."

"Any viable proposal from the President’s Fiscal Commission must strengthen our economy, but it must do so in a fair way, focusing on how we can effectively promote economic growth," she stated, adding that: "Any final proposal should do what is right for our children and grandchildren’s economic security as well as for our nation’s fiscal security, and it must do what is right for our seniors, who are counting on the bedrock promises of Social Security and Medicare."

While both camps see things that they both like and dislike in the report, it is clear that the Republicans are more open to the idea of using it as a launch pad for a discussion on tax and spending reform.

"This is a provocative proposal, and while we have concerns with some of their specifics, we commend the co-chairs for advancing the debate. We will continue to work toward solutions that help spur economic growth and restrain the explosive growth of government spending," commented Fiscal Commission member Rep. Dave Camp (R-Michigan), along with Paul Ryan (R-Wisconsin), and Jeb Hensarling (R-Texas).

President Obama, meanwhile, is reserving judgment on the Commission's proposals until its final report is published on December 1.

“The President will wait until the bipartisan fiscal commission finishes its work before commenting," said White House spokesperson, Bill Burton. "He respects the challenging task that the co-chairs and the commissioners are undertaking and wants to give them space to work on it. These ideas, however, are only a step in the process towards coming up with a set of recommendations and the President looks forward to reviewing their final product early next month."