by Michael J. Graetz, LL.B., the Justus S. Hotchkiss
Professor of Law
Yale University Press, 2008, 254 pp..
Michael Graetz, a Yale Law School professor, has written many books and studies related to major tax reform. His previous books on income tax reform may be familiar to readers— The Decline (and Fall) of the Income Tax (1997) and the 1999 paperback version The U.S. Income Tax: What It Is, How It Got That Way, and Where We Go From Here . Graetz’s titles indicate the progression of his thoughts and research in a series of studies, which have culminated in his plan for comprehensive reform that is the subject of this book. Graetz probably hopes that Congress adopts the basics of his plan so that his trilogy can be complete. However, his fear is perhaps that instead this is only the start of a long series.
Graetz states that his plan “offers a nonideological, reasoned, fiscally sound and feasible way to modernize our tax system. It would avoid shifting the tax burden away from those most able to pay to families with less income or wealth, while allowing us to fund our government in a manner more conducive to economic growth and increasing standards of living for all Americans.” This plan, the Competitive Tax Plan, consists of six parts: (1) Enact a value-added tax; (2) eliminate the income tax for most Americans; (3) lower the corporate income tax rate; (4) retain the estate and gift taxes; (5) introduce a payroll adjustment or “smart cards” to protect low- and moderate-income workers; and (6) create incentives for states to adopt a similar model.
Businesses with annual gross receipts of less than $100,000 would be exempt from the value-added tax; married couples with incomes under $100,000 ($50,000 for single individuals) would not pay income taxes. Graetz offers a creative solution to minimize the regressive effect of a consumption tax with a “smart card” or payroll adjustment. To make more corporate income subject to tax and to discourage tax shelters, Graetz recommends greater conformity between book and tax accounting for publicly held companies.
Readers of earlier works will recognize the basics of the Graetz plan, but will discover many more details in this book. Graetz outlines the details of his plan while comparing it to other plans for major tax reform. Interested citizens without a tax background can understand his clearly written explanations, while the details in footnotes and appendices provide enough supporting information to satisfy the more serious tax expert.
All CPAs could find value in reading this book. Those in tax practice obviously need knowledge of tax reform proposals and by reading this book they could gain a basic understanding of all the major plans. Graetz’s comparison of his plan to the other plans serves as a primer on tax policy issues that are central to the debate over tax reform. Regardless of when (or if) one of these proposals is enacted, CPAs who read the book will be able to respond to questions from clients and other parties with an interest in this debate. Accountants who are not tax practitioners also have a stake, at the least as taxpaying citizens. Armed with this knowledge, CPAs can and should have a voice in the debate over the future of our federal and state tax systems.