In February 2010, President Obama formed the bipartisan, 18-member National Commission on Fiscal Responsibility and Reform. It was to identify approaches to improve the nation's finances, reach a balanced budget by 2015 and "achieve fiscal sustainability over the long run." A final report was due December 1, 2010 requiring approval of 14 of the 18 Commission members. Monthly hearings were held and testimony was solicited broadly. The Commission co-chairs released their own proposals before the December 1 deadline (November 20, 2010 report). The Moment of Truth report was released on time but the subsequent vote resulted in only 11 of the members approving it though the group included members from both political parties.

While the December 2010 report lacked the requisite votes to be "final," it exists and Congress certainly can consider it along with numerous other reports and suggestions from earlier commissions, taxpayers, practitioners, legislators and others that address national budget and tax system problems and solutions.

The Report included suggestions for significant reform of the income tax. This article summarizes the key concepts in the report as well as the specific recommendations offered for corporate tax reform.

Highlights of the Fiscal Fix

The report describes a six-part plan consisting of spending cuts, as well as budget-and-tax system reforms that intends to reduce the deficit by $3.9 trillion by 2020. The six parts:

1. Cuts in discretionary spending including reductions in defense spending as well as cutting "low-priority programs and streamlining government operations."
   
2. Tax changes that broaden the base and reduce rates. Reduce "tax expenditures" significantly thereby broadening the base. Corporate taxes would be modified to improve competitiveness of American businesses.
   
3. Contain healthcare costs in a variety of categories and work to control growth in spending.
   
4. Cut certain subsidies and reform retirement and some loan programs to put them on a sustainable path.
   
5. Reform Social Security for "long-term solvency," improve assistance to seniors in need and encourage personal retirement savings.
   
6. Reform the budget process to control spending, more accurately measure inflation and ensure responsible spending.

Some of the key themes of the report include the following items:

• The problem is serious: "The problem is real. The solution will be painful. There is no easy way out. Everything must be on the table. And Washington must lead." (page 6) Deficit spending and decreased tax collections resulting from the recession have caused the national debt to increase from 33 percent of gross domestic product (GDP) in 2001 to 62 percent of GDP in 2010 and debt levels are on a path to increase even further.
  
• Broad discussion is needed: The authors intend for the six-part plan to be a suggestion for continued discussion in Congress as well as in households and communities.
  
• Action is needed now: "It is long past time for America's leaders to put up or shut up. The era of debt denial is over and there can be no turning back." (page 7) Elected officials and the public need to be pro-active rather than only reactive; only finding faults with proposals is unworkable. Proposals should not be dismissed without offering alternatives. In finding solutions, there is a need to focus on the national interest rather than individual and special interests.
  
• Spending exists in the tax law: The report includes "spending in the tax code" when describing the need to reduce spending. It refers to "tax expenditures" as spending and "tax earmarks." For example, the report states: "Washington has riddled the [tax] system with countless tax expenditures, which are simply spending by another name. These tax earmarks -- amounting to $1.1 trillion a year of spending in the tax code -- not only increase the deficit, but cause tax rates to be too high."

Corporate Tax Reform

The report includes suggestions to reform both the individual and corporate income tax systems. The suggested approach is to do the following by 2012 with appropriate transition rules:

• Remove or reduce almost all special exclusions, deductions and credits thereby broadening the base;
  
• Lower tax rates; and
  
• Maintain progressivity in the individual income tax.

The key features of the corporate tax reform proposals are:

• A single tax rate between 23 percent and 29 percent.
  
• Eliminate all tax expenditures including all tax credits, LIFO accounting and the ~§~199 manufacturing deduction. The Report notes that there are over 75 business tax expenditures currently in the tax law.
  
• Move from a worldwide system to a territorial approach to taxing income. The goal is to make the U.S. tax system more similar to that of trading partners. Passive foreign-source income would continue to be taxed.

The Report states that additional benefits of base broadening and rate reduction include simplicity, reduced compliance costs, greater equity, a reduced tax gap and economic growth.

Looking Forward

Although the Deficit Commission was not able to get at least 14 members to sign onto the report, the authors of the report seem to have succeeded in sending their message that our current fiscal picture has crucial problems that necessitate serious actions now. President Obama has stated that a conversation on tax reform can be started this year (NPR interview; December 10, 2010). Treasury Secretary Geithner met with several CFOs on January 14, 2011 to discuss corporation tax reform (McKinnon, "Progress on Overhaul of Corporate-Tax Rules," The Wall Street Journal, January 15, 2011). On January 20, 2011, the House Ways and Means Committee held the first in a series of hearings on fundamental tax reform.

While these events may tie more to the extension of the 2001/2003 tax cuts than the Deficit Commission report, they all indicate that a call-to-action is underway with positive movement towards corporate tax reform.