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Witnesses: Code too taxing

Businessmen and scholars tell a committee studying tax reform to keep it simple.

By HELEN HUNTLEY
Published March 9, 2005

TAMPA - The business executives and professors who turned out to talk about taxes Tuesday morning had a message for Congress: Don't do us so many favors.

Even when they're the intended beneficiaries, tax law tinkering creates huge compliance burdens and uncertainty for businesses, they said.

"We'd like to know what to expect so we can plan for our business," said Todd Flemming, president of Infrasafe, an Orlando company that provides security products and services.

The President's Advisory Panel on Federal Tax Reform was in Tampa to listen to him and seven other witnesses as part of a series of hearings on what's wrong with the tax code and how to fix it. Five of the committee's members were on hand Tuesday with a sixth listening in over the Internet.

What they heard is that the tax code is too complicated and changes far too often.

Roger Harris, president of Padgett Business Services in Athens, Ga., said the thousands of small businesses his company serves don't mind playing by the rules as long as they know what the rules are.

"It's almost impossible to know if you qualify for a deduction," Harris said. "And everything you did yesterday is no longer applicable today."

Government efforts to make social policy through tax law came in for sharp criticism, with the tax law Congress passed in October held up as a prime example. One provision reduces tax rates for income from U.S.-produced movies - as long as they have no sexually explicit content.

"This is one example of assigning to the IRS issues its auditors are neither trained nor suited to resolve," said Jack Levin, a Chicago lawyer who also teaches at the University of Chicago and Harvard law schools.

Many provisions of the tax law seem arbitrary, the businessmen said. David Hurley, owner of Landmark Engineering and Surveying Corp. of Tampa, said it didn't make sense that he couldn't expense the pickup trucks he used in his business, but the tax law would have allowed him to write off a Hummer.

The alternative minimum tax, which requires many businesses and individuals to figure their tax bills two different ways and pay the higher amount, also drew scorn.

"To have two different tax systems is semi-lunatic," Levin said.

Speakers proposed lowering the corporate tax rate and broadening the base by taxing more income. However, they noted the tax is declining in importance. A big reason is that most companies are structured so they don't pay taxes at the corporate level. Instead, profits pass through to shareholders and are taxed on their individual income tax returns.

"Individual income tax reform is indeed small business tax reform," said Donald Bruce, a University of Tennessee professor.

Former U.S. Rep. Sam Gibbons of Tampa spoke in favor of a value-added tax, a proposal he introduced in Congress in 1996.

"What I'm trying to do is get America in step with the rest of the world," he said. Gibbons said the current tax system is "beyond repair," and admitted that he's responsible for some of the defects.

Gibbons wants all businesses, governments and not-for-profit entities to pay a tax on the difference between their gross sales and their purchases, excluding exports and imports. Once that's adopted, he said Congress' only role should be to set the tax rate, which he said should be high enough to replace Social Security taxes as well as corporate and personal income taxes.

Panel chairman Connie Mack, a former U.S. senator from Florida, said he got the message.

"People are just fed up with how complex this is," he said. However, he said he isn't sure there is a good way to stop Congress from constantly changing the tax law or even whether that issue falls within the purview of the tax reform panel.

A former congressman on the committee, William Frenzel, now a guest scholar at the Brookings Institution, wondered aloud how long any fix to the tax law could last before Congress would be back to its tinkering.

"Are we wasting our time?" he asked.

Several speakers said reform is important even if it doesn't last.

"You'll never build a system that will be perfect forever," Levin said. "We need to clean up the mess that we've made."

Only invited witnesses were allowed to speak, but the hearing drew an audience of about 80 people, who filled the chairs in a meeting room at Sago Networks, a Tampa wireless network provider. Many wore buttons or T-shirts supporting the FairTax, a proposal to replace income and payroll taxes with a national sales tax.

Pat Wright, 11, the son of FairTax's executive director, Thomas Wright of Clearwater, came in his Boy Scout uniform. He said he is working on citizenship and communications badges and pronounced the colorful graphics one speaker brought as "cool."

Helen Huntley can be reached at huntley@sptimes.com or 727 893-8230.

[Last modified March 9, 2005, 00:54:20]