Tax panel reform proposals unveiled today

WASHINGTON (11/1/05)—The President's Advisory Panel on Federal Tax Reform announced it will deliver its recommendations to U.S. Treasury Secretary John Snow today meeting its Nov. 1 deadline.

President George Bush established the tax advisory panel on January 7 to study the U.S. tax code and recommend options for reforming the country's tax laws.

During its deliberations, the panel has identified overhauling the tax treatment of financial institutions as one of its objectives and members have made the following key points:

  • While credit unions were not addressed specifically, several members of the panel stated that public policy does not require different treatment for different kinds of financial institutions.

  • The panel is considering broad reform of the tax treatment of all financial corporations, including banks and credit card companies.

  • The panel is considering a tax system based on the cash flow of financial institutions; the institution's tax liability would be based on its funds taken in, minus funds distributed, plus wages and related expenses.

  • The panel is considering how to treat the pricing of services and products that include implicit fees to the institution, such as the pricing structure of some checking accounts.

  • Unrelated business income tax (UBIT) might be eliminated at the federal level.

  • Business entities, except for financial institutions and sole proprietorships, could be subject to the same tax structure -- which would be based on cash flow, at a rate of 32-35%. All new capital investments could be written off immediately but interest deductions for nonfinancial businesses would be eliminated.

  • Also, different tax treatment for entities such as limited liability corporations could be eliminated.
The tax panel, chaired by former Sen. Connie Mack, also discussed significant tax-code changes for individuals such as eliminating mortgage interest deductions for second home and equity lines of credit, and doing away with deductions for state and local income and property tax.

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