Tax Reform Unvisited: The Need for an Academic Voice

ABSTRACT The number of tax reform proposals that would scrap our current federal income tax system and replace it with an alternative system continues to grow. Despite the proliferation of major tax reform proposals, research from finance and accounting professionals on the impact of proposed research is scant. The author briefly discusses some of the more popular proposals and identifies research questions that academic researchers need to address. INTRODUCTION Recently I heard a radio advertisement encouraging taxpayers to call a toll-free number and voice their support for a tax. The ad, placed by an organization called Americans for Fair Taxation, advocated a national sales tax to replace our current federal income tax. Because my research interests include tax equity and efficiency, I have more than a passing interest in what others think constitutes a tax. To satisfy my curiosity, I accessed the organization's web page the following morning. The web page is both impressive and comprehensive. One can read position papers that analyze the impact of a national sales tax on wages, the underground economy and tax evasion, interest rates, the stock market, various industries, tax fairness, households, charitable giving, agriculture and numerous other economic factors. The voices calling for major tax reform and/or replacement of the federal income tax continue to increase both in numbers and in volume. Congress has heard the call. For example, on June 17, 1998, the House passed the Tax Code Termination Act (H.R. 3097). The following day the Senate referred the Resolution to the Senate Finance Committee for consideration where, it is quite possible, it will die in committee and never come before the Senate for a vote. Nonetheless, H.R. 3097 is only one of 8 bills introduced in Congress since September 1997 which calls for terminating the current Internal Revenue Code. There appears to be a growing interest in replacing our current progressive income tax system with an alternative system. Neither H.R. 3097 nor any of the other bills contain specific proposes for an alternative system. The Resolution merely states that .. .any new Federal tax system should be a simple and fair system and should: * Apply a lower tax rate to all Americans; * Provide tax relief to working Americans; * Protect the rights of taxpayers and reduce tax collection abuses; * Eliminate the bias against savings and investment; * Promote economic growth and job creation; and * Not penalize marriage or families (H.R. 3097, Sec. 3a). Despite the absence of a specific proposal in the Resolution, there are proposals to replace the current tax system that have received considerable political support. In 1996, the American Institute of Certified Accountants and Martin A. Sullivan published Changing America 's Tax System: A Guide to the Debate (AICPA and Sullivan, 1996). The stated purpose of the book was to introduce interested parties to the various approaches to replacing our current income tax. The authors provided an in depth discussion of some of the major alternatives to the federal income tax including a national retail sales tax, a value-added tax, the Armey Flat Tax Plan and the Nunn-Domenici Unlimited Savings Allowance (USA) Tax. Although the authors cover a broad range of topics, they cautioned that their discussion does not do justice to the enormous issues involved in totally revising federal tax policy (AICPA and Sullivan, 1996, at 182). They concluded their discussion with a number of questions that they felt needed to be addressed and/or researched, including a number of issues that are clearly the within the domain of accounting and finance academics. Nonetheless, nearly three years after AICPA and Sullivan and despite growing public and private support for revamping of the federal income tax system, there remains a dearth of accounting and finance research regarding alternative tax systems. …