A Better Way on Taxes through Lower Burdens and Simplicity

Over the past few weeks Republicans in Congress, led by the Speaker of the House Paul Ryan and Chairman of the House Ways and Means Committee Kevin Brady, have been rolling out their ideal policy changes for the future. These reforms are encompassed in the Republican Party’s initiative entitled "A Better Way" and is aimed at letting the American people know what the Republicans are for rather than what they are against. The topics discussed in the initiative range from national defense to healthcare to alleviating poverty.

One of the policy topics that should spark the interest of taxpayers is the detailed reform of the current tax code. This October will mark thirty years since the last comprehensive overhaul of our tax system when President Reagan signed the Tax Reform Act of 1986 to simplify and reduce taxes. National Taxpayers Union Foundation’s (NTUF) annual study of tax complexity helps paint a stark picture of the Code’s creeping growth since the enactment of that landmark legislation three decades ago. In 1985 the 1040 form’s instructions were 52 pages long, in 2015 they were 211 pages long. The entire code itself currently entails over 70,000 pages of convoluted and confusing rules, definitions, credits, and exemptions.

Navigating through this complex code presents a daunting task for taxpayers. By the last full accounting, taxpayers spent over 6.1 billion hours complying with the tax law, costing the economy near $234.4 billion per year. Worse is on the way. The Internal Revenue Service’s (IRS) regulatory inventory, comprising the impact of all the tax agency’s current or immediately planned rulemakings, is a staggering 8.96 billion hours.

Moreover, the complexity of the tax code also presents troubling administrative challenges, opening the door for waste, fraud, and abuse. For example, the IRS estimated that 24% of the $14.5 billion in Earned Income Tax Credit payments issued in FY 2013 were improper. The IRS’s inability to properly combat fraud and improper payments through wrongfully claimed tax credits and exemptions only amplify the calls for tax reform.

The Republicans’ “A Better Way” approach attempts to remedy these problems in the tax code by:

  • Simplifying and reducing the individual tax brackets from seven to three and lowering the highest tax bracket from 39.6% to 33%,

  • Consolidating and clarifying a number of overlapping deductions and tax credits for families and for those utilizing education tax benefits,

  • Repealing and burying the estate tax,

  • Lowering the corporate tax rate from 35%, which is the highest of any Organization for Economic Cooperation and Development country, to 20%,

  • Lowering the top tax rate for pass-through entities, such as small businesses, to 25%,

  • Allowing businesses to complete write-off investments from being included in their taxable income, thus no longer punishing businesses that attempt to expand and grow,

  • Promoting overall simplicity that should lower the compliance cost experienced by taxpayers, especially small businesses.

These policy changes to the tax code would be a massive improvement to the current complex code that reduces America’s productivity and discourages investment. Simplicity, predictability, and a lower tax burden will lead to greater opportunity and prosperity. Congress should continue to explore tax reform alternatives that result in reducing the overall tax burden placed on Americans.