This interview is one in a series in which we've asked an industry leader questions on the topic of tax reform and the issues faced by Congress in addressing the tax code.
Michael Tuchman is a partner in Levenfeld Pearlstein’s Corporate & Securities and Tax Planning & Litigation groups. He structures and closes complex and tax sensitive transactions and builds organizational structures for U.S. and international operating, investment and real estate companies. Tuchman began his career in 1984 as a tax lawyer and is now a trusted advisor to numerous businesses and investors. He is an experienced and pragmatic negotiator.
What are your thoughts on Congress allocating significant time and resources to tax reform in 2015?
The goal is admirable but unlikely to be realized in this partisan environment. While there is some bipartisan support for a number of changes, nothing that is being contemplated rises to the level of what I would call reform. It is the usual tinkering with revenues, benefits and interests. Recall the president’s commission on tax reform in 2012? Few do.The president was as anxious to bury it as were his political opponents.
How can Washington simplify the tax code?
I reject the question “How?” as it is based on the premise that the president and Congress are capable of any serious-minded efforts at tax reform. My cynicism overwhelms my fear of being proved wrong on this one.
Are there certain parts of the tax code today that would dramatically change your business should they be repealed?
Many of my clients are real estate investment firms whose ability to conduct tax deferred exchanges under Tax Code Section 1031 is under threat. Some politicians see repeal of Section 1031 merely as taking away a tax benefit that is not afforded corporate equity investors. They do not appreciate the extent to which 1031 repeal would sap important liquidity from the real estate markets at precisely the wrong time in a slow recovery.
The upper end of the tax rate for U.S. corporations is 35% and the individual rate is pushing 40% for just federal and state taxes. Should these rates be cut, and if so what tax incentives would you be willing to give up in order to facilitate that?
The phrase “tax incentives” is a euphemism that obscures underlying problems with our taxing system. If such incentives were eliminated, even meaningfully lower rates would satisfy reasonable governmental needs. On the corporate side, our high tax rates (coupled with our antiquated view of multinational companies) makes us decidedly uncompetitive. Yet our administration would rather castigate businesses for being disloyal rather than address the perverse incentives that have diverted potential tax revenues abroad. And our Congress sees no need to reign in its own proclivity to make concessions to special interests
Should Congress address corporate-only or comprehensive tax reform, and why?
Putting my skepticism aside for the moment, corporate reform would be a good place to start because it is fairly self-contained. If Washington would adopt a commercial rather than a redistributionist’s view of corporate tax, it could find its way to a system of simplicity, lower rates and increased revenues. If washington accepts that we are competing globally for taxable revenues and are not merely entitled to them, very different drivers will be at play in the tax system’s design.