Costs, Benefits of Tax Reform

October 11 panel, “Tax Reform: Perspectives Across the Nation,” considered implications, alternatives to current reform proposals.

Participants at BU Law's October tax reform panel.
From left to right: Alan Feld, Cara Griffith, Ameek Ponda, Christina Rice, and Ajay Mehrotra.

Boston University School of Law gathered four tax experts for Tax Reform: Perspectives Across the Nation, a panel and discussion on October 11. The event was co-sponsored by the BU School of Law Graduate Tax Program (GTP), the American Bar Foundation (ABF), and Tax Analysts and was one in a series of nationwide panels on the subject led by Tax Analysts and the ABF.

The panel featured four speakers: BU Law Professor Alan Feld, President and CEO of Tax Analysts Cara Griffith, Sullivan and Worcester Partner and BU Law Adjunct Professor Ameek Ponda, and BU Law Graduate Tax Program Director Christina Rice.

CTA-grad-tax-programThe panelists offered perspectives on tax reform in light of the Trump administration’s proposed tax code overhaul, for which a framework was released on September 27.

Ajay Mehrotra, executive director and research professor at the American Bar Association and professor of law at Northwestern University’s Pritzker School of Law, moderated the discussion.

Ameek Ponda emphasized the importance of focusing on the tax base rather than the tax rate and recommended tax diversification, with many low-rate taxes, rather than a tax utopianism with higher rates on a narrow base. “Simplification does not come from changing rates,” he said. Additionally, “we rely enormously on income and payroll taxes” at the federal level.

Ponda acknowledged that in considering tax diversification, there are “political and ideological boxes,” that limit acceptance. But he also noted that there are divisions in applications of tax law “embedded in a lot of proposals.”

Alan Feld echoed Ponda’s suggestion of political and ideological implications for tax reform.

“Tax reform is not self-defining, nor are the goodies that we think we get from tax reform,” Feld said. “Simplification, efficiency, fairness—none of these are self-defining, and all of them are political in structure as well as economic and moral.”

Feld offered a more “utopian” view of tax reform that would “equalize the burden of income from capital with the income from wages,” he said.

He noted that searching for a solution for the tax code is possible “without accepting that the tax code is necessarily broken,” but he took issue with the current proposal in Congress.

“Not everyone will do well,” he said. “My fear is that in this current tax reform environment, [the] gap in income is going to get widened rather than reduced.”

Christina Rice offered a “domestic perspective” for corporations in the new proposal.

“I feel like the progressive argument against lowering the corporate tax rate is that it’s going to put tax dollars into the pockets of the wealthiest people,” Rice said. “It’s conflating the argument between the corporate tax rate and the individual tax rate,” each of which offer different benefits.

According to Rice, there are several different benefits corporations hope to gain from tax reform, including simplicity, predictability, and lower rates.

Because corporations want lower effective tax rates, the proposed reduction “is going to make your tax directors and corporations very happy,” she said.

Rice noted that corporations seek simplicity because there are costs associated with hiring an expert to evaluate complicated tax code. She also said that “the current environment of uncertainty is bad for business,” since it can cause companies to spend more on assets during periods of high tax rates, and then work to accelerate income in low-rate years.

She suggested that if the corporate tax rate is cut, one of two possible outcomes can occur.

“One, those tax savings will be reinvested in the business” by increasing salaries, pursuing additional research, or acquiring property—all outcomes that would be favored by progressive opponents of corporate taxes, Rice said.

“The other possible outcome is that the money saved from lower corporate tax rates would be redistributed to shareholders as dividends,” Rice said. In that case, she suggests considering a raise on the tax rate of capital gains to compensate.

Panelist Cara Griffith, who comes from a background in state and local taxes, noted that there are still conversations to be had about the details of the tax reform.

“We have a set of proposals and no one actually has any idea of what the details are going to look like,” Griffith said. Through discussion, “we will eventually come to a better solution at the end of the day.”

Griffith said that, in her opinion, the state and local tax deductions are unlikely to be eliminated in the new reform. “I think at the end of the day it will be here in its entirety,” she said.

She concluded the panel portion of the event and initiated a discussion of the new proposal with an emphasis on the state and local tax deductions. The interactive conversation included panelist perspectives and questions and comments from audience members.

Reported by Kaya Williams (COM’20).

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