It’s been more than 30 years since the United States tax code saw any reform. There is an opportunity for Congress to do that now. We hope they do and in a way that is fair to all taxpayers.
The 1986 Tax Reform Act simplified the tax code, creating two brackets (15 and 28 percent) while eliminating many deductions. Over the last 30 years, the number of tax brackets has grown from two to seven. Umpteen credits and deductions increased the tax code from approximately 26,000 pages in 1984 to more than 74,000 pages today.
Taxpayers spend 6 billion hours each year preparing individual tax returns.
The tax code is over-burdensome, costly and too complicated for anybody to file their taxes without the use of software or a professional tax preparer. That shouldn’t be. We’re glad Republicans in control of Congress are beginning to devise reforms.
The fairest and most effective tax system is one with low rates across a broad base. And given the current state of the economy, as well as the political environment, we believe the best tax reform is one that is revenue-neutral, as opposed to one designed to starve government or raise a ton of new revenue.
Unlike the tax cuts enacted by Ronald Reagan in 1981 and George W. Bush in 2001 when the economy was struggling, President Trump and Congress don’t face that situation. The recovery from the financial crisis and the recession of 2008-09 is 8 years old. The economy does not require stimulation. What’s needed now is a plan that promotes saving, investment and growth.
Simplification of the tax code is a logical first step. The current system has too many tax brackets and far too many credits and deductions. The IRS page for individuals lists 50 different credits and deductions. There are more if people are self-employed.
Eliminating many of the credits and deductions would allow for doing away with some of the seven current tax brackets, reducing them to three and lowering marginal rates. President Obama’s bipartisan Deficit Commission, headed by former Sens. Erskine Bowles and Alan Simpson, favored this approach.
We understand this approach will come with short-term pain as some people and interests lose credits and deductions. But the change comes with the long-term gain in the form of lower marginal rates. That benefits people as they become more upwardly mobile.
In addition to individual tax reform, we also support corporate tax reform. The United States has one of the highest corporate statutory income tax rates in the industrialized world at 38.91 percent (the federal rate plus an average of the corporate rates levied by states).
The current rate drives companies overseas, reducing revenue the government collects despite the higher rate that is levied on those left behind. A lower corporate rate along with closing loopholes and eliminating many of the business tax credits and deductions — as well as firm enforcement of the law — will keep companies here and produce more government revenue.
Opportunities for comprehensive reform of the tax code do not present themselves often. With a stable economy, low unemployment and low inflation, President Trump and Congress have an excellent opportunity to provide the country with much-needed reforms to the tax code.
Let’s demand they present a plan that works for the betterment of the country as a whole.