One of NTU Foundation's primary goals is to offer taxpayers the information they need to better understand the federal tax system. Over the years we've gathered countless data points, written dozens of reports, and tracked thousands of pieces of legislation to show taxpayers how their share of the tax burden is changing, who pays taxes, and the case for reforming the system and what that might look like.
As another Tax Day unfolds, we've gathered some of these resources for taxpayers to brush up on.
Tax Basics
Who pays federal income taxes? Are Members of Congress taxed differently than others? How much of the tax burden do the top and bottom income brackets pay? All of these questions and more are answered on our Tax Basics page, which features decades of historical data to illustrate how the federal income tax has changed over time.
The Case for Tax Reform
Anyone who's ever filed a federal income tax return knows just how complicated, expensive and time consuming the process can be. NTU Foundation researchers recently authored two papers showing not only the degree to which these problems have grown, but also the costs and implications -- and why reforming the system is no longer just a political issue, but a practical need.
- A Complex Problem: The Compliance Burdens of the Tax Code reveals that Americans spent 6.1 billion hours adhering to the Tax Code last year, which cost the economy roughly $234 billion in lost productivity. The paper also shows how the U.S. tax system is growing more complex, and what that means for individuals and businesses alike.
- The Need for Tax Reform: Simplicity, Savings, and Security highlights some of the "hidden" costs of tax complexity, including more frequent identity theft and higher enforcement costs for the IRS.
Options for Reform
While the need for tax reform is becoming increasingly clear, there is less consensus on which path to take towards achieving it. In The Need for Tax Reform, NTU Foundation identified three principles that should guide any reform effort: simplicity, equity, and efficiency. A simpler system is easier to administer and comply with; an equitable one avoids arbitrary exceptions and is fairly enforced; and an efficient one minimizes economic distortions while reducing costs imposed on filers.
What might a system like that look like?
- Several recent proposals for reform were featured in a February edition of The Taxpayer's Tab. Rep. Dave Camp's (R-MI) plan would leave the existing structure largely in place while simplifying certain aspects, including a reduction in the number of tax brackets (from 7 to 2) and repealing a number of credits and deductions. Richard Shelby's (R-AL) SMART Act would institute a single 17 percent bracket. And the Fair Tax Act would scrap the existing system entirely in favor of a single 23 percent consumption tax on all new goods and services.
- Famous economist Milton Friedman was a prominent advocate of the "negative income tax" as well as the flat tax, which NTU Foundation summarized along with Friedman's views on tax reform in general in a blog post from 2013.
- Last month, Senators Marco Rubio (R-FL) and Mike Lee (R-UT) introduced their own tax reform plan which has several different components. For businesses, their legislation allows a deduction of the full upfront costs of capital investments like new software or office/factory equipment; additionally, it ends so-called "double taxation" of firms' investments by exempting their dividends and capital gains.For individuals, the Rubio-Lee plan reduces the number of personal income tax brackets from 7 to 2, eliminates the standard deduction and Alternative Minimum Tax, and expands eligibility for and amount offered through the Child Tax Credit.
Much like the Tax Code itself, enacting any level of tax reform is likely to be complicated (and made more difficult by political considerations at a time where compromise in Washington is difficult to achieve). But on Tax Day especially, we are reminded by our study of the issue that the current system is already too complicated to continue.