Simplified tax code would benefit us all

Published on Sunday, 13 April 2014 21:55 - Written by

Today, of all days, tax code reform should be an easy argument to make. Americans are staring down tomorrow’s federal income tax deadline, and there’s no word that should resonate more than “simplify.”

“The best that can be said of Tax Day is that it provides a yearly reminder of just how convoluted the tax code is and how much damage it does to the economy,” noted Curtis Dubay of the Heritage Foundation. “It should also serve as a periodic reminder that filing taxes does not have to be this way. Tax reform, if done right, would help Americans in numerous ways.”

What would simplification mean? For one thing, it would mean more money in the pockets of American families.

“Families would see their incomes grow because tax reform would lessen the severe disincentives that the tax code currently imposes on the fundamental activities of economic growth — working, saving, investing, and taking on risk,” Dubay contends. “This would allow the economy to grow stronger, which would mean more opportunities for Americans at all income levels to find higher-paying jobs and earn larger wage increases.”

That’s even with revenue-neutral reform.

Something else tax reform would do is something many say they want — reduced influence of special interest groups and lobbyists in Washington. Most lobbyists seek special tax breaks or preferred treatment for their industries. Cutting the number of deductions, exemptions and credits would also make the tax code more transparent.

And that would make the tax code more fair.

“Families with similar financial circumstances would be confident that they were paying similar amounts of tax,” Dubay added. “It would also be clear that higher-earning families were paying commensurately higher taxes. High earners pay almost all federal income taxes today — the top 10 percent of earners pay 71 percent — but because the tax code is so convoluted, many believe they get away with paying less than they rightfully owe.”

The good news is that there’s legislation already filed that would reform the tax code.

Congressman Dave Camp, a Michigan Republican, has a plan that’s far from perfect, but at least it’s a start. One major feature is that it reduces the corporate tax rate from 35 percent (the highest in the developed world) to 25 percent. That will result in a net increase in tax revenues, because of the Laffer Curve (companies won’t have the incentive of the high tax rate to avoid taxation).

“Despite its flaws, the Camp plan will keep the debate about tax reform alive in Washington and around the country,” Dubay contended. “While the plan is unlikely to become law, it could spark a national debate, eventually leading to fundamental tax reform. Authors of future tax reform proposals should learn from Chairman Camp’s effort that maximizing the economic benefit of tax reform is extremely difficult when forced to balance pro-growth rate reductions and other positive reforms with adverse changes that hurt growth.”

On a day like this — April 14 — will that argument really be hard to make?

The trick will be keeping the discussion going past April 15.