US Study Looks At Tax Allowances Reform
24 July 2013
Posted by: Author: Mike Godfrey
Author: Mike Godfrey
The suggestion that United States tax reform should begin with the "blank slate" approach of eliminating all tax expenditures has led the Committee for a Responsible Federal Budget (CRFB) to identify so-called "non-tax expenditure base provisions" (NTEBPs) as a further source of broadening the existing income tax base.
It was noted that the leaders of the Senate Finance Committee recently wrote a bipartisan letter to their Senate colleagues suggesting a "blank-slate" approach as the next step for tax reform. Under that method, all of the present exclusions, deductions and credits would be eliminated from the US tax base, with other lawmakers then being asked to provide, by July 26, 2013, justified proposals for those tax expenditures they want to add back into a reformed tax code.
However, in an article, the CRFB points out that NTEBPs, as well as tax expenditures, are provisions in the US tax code that narrow the tax base and allow for a reduced tax burden but are not being eliminated under a blank slate exercise "because they do not represent a clear divergence from a 'clean' tax code."
For example, it is said, under the "normal" income tax framework, the general structure of individual income tax includes a personal exemption for each taxpayer and each dependent, and the existing tax rate schedule. For corporate taxation, with an emphasis on taxing net income, normal business expenses are allowed to be deducted. In fact, the article's authors identify 13 NTEBPs that policymakers could consider reducing, repealing or modifying.
Individual NTEBPs to be studied include the expense deduction for employees who move for employment reasons; expense deductions for employees over the cost of, for example, professional journals and publications, uniforms and dues paid to professional organizations; the deduction for business expenses related to a taxpayer's home; and the standard deduction for taxpayers who do not itemize mortgage interest, charitable giving, or state and local taxes.
Within the business NTEBPs to be examined, the deductibility of advertising costs, employee training costs; state and local income taxes, interest expenses, meals and entertainment expenses, and amortized intangible expenses, are put under the spotlight.
The article concludes that NTEBPs "are an important part of the code that deserve careful review and far more attention than they have received to date. …These provisions alone demonstrate that significant revenue (to reduce tax rates) can also be found by including these less-highlighted elements of the code in base-broadening discussions."
"Among other goals," it adds, "tax reform should help to ensure that income is being measured accurately and that opportunities to curb abuses or better allocate limited resources are not missed. That objective requires reviewing tax expenditures and NTEBPs alike."