Confirming municipal market participants' suspicions after months of inaction, Treasury Department Secretary Henry Paulson said yesterday that the Bush administration does not plan to propose comprehensive tax reform in the near future.
In testimony before the Senate Finance Committee at a hearing about the tax gap, Paulson said federal officials have been focused on more timely tax relief measures, including pension reform, enacted recently by Congress. In the meantime they decided to sideline efforts to make wide-ranging changes to the tax code, he said.
The Treasury secretary's comments were made in an exchange with Sen. Ron Wyden, D-Ore., a strong proponent of tax reform who pointed out that it has been roughly 18 months since the president's advisory commission released its proposals for overhauling the code.
Those recommendations rattled the muni market in the fall of 2005 because the commission proposed more favorable tax treatment for taxable investments, which could significantly reduce demand for tax-exempt bonds. The Treasury Department has not taken any formal action on that report.
"I think it is too bad that at a time when the country thinks the tax code is broken -- when in the last few weeks we've had people go through bureaucratic water torture to file this and schedule that -- we still don't understand why the administration is stalling on tax reform," Wyden said. "When can we expect the administration to come forward with concrete proposals, [so] we can go at this in a bipartisan way?"
Paulson, after thanking Wyden for his enthusiasm and effort in the area, responded that "the judgment was made that we've had significant tax relief and that [it has] been a very major priority, in terms of entitlement reform" and other new laws.
"We've deemed those very pressing. We've emphasized [tax code simplification] in more incremental ways," Paulson continued. "There isn't a major tax reform proposal being put forward now, and I don't see that on the dockets in the near future."
Wyden, who this week re-introduced legislation that would flatten and simplify the tax code, replied that Treasury's decision was "a bad judgment. What was the point of having the commission? It is basically being labeled a sham; [there was] really no point in having it," he said. "Practitioners are telling me that the system is so broken that it does give people the green light to go off" and take advantage of loopholes in the code, contributing each year to the tax gap, which is the difference between taxes owed to the federal government and those actually collected.
"Simplifying [the code] will make a real dent in the tax gap. I hope you'll reconsider this," Wyden said. (c) 2007 The Bond Buyer and SourceMedia, Inc. All rights reserved. http://www.bondbuyer.com http://www.sourcemedia.com
