Tax Day may now be in our rearview mirror with taxpayers putting away their calculators, pens and aspirin until next April rolls around. But what can’t be relegated to a desk drawer is the frustration at a tax code that is simply out of control in its sheer size and complexity.
It’s a thirty-year-old problem in need of a solution. Fortunately for taxpayers and our economy, that solution – comprehensive tax reform – is within our grasp as the House Ways and Means Committee has kicked off a series of hearings.
It is truly mind-boggling the amount of time required annually to comply with our current tax code; not to mention the complexity burden it imposes on taxpayers. National Taxpayers Union Foundation reported that the time spent on 1040 forms in 2016, of which there are nearly 150 million, consumed 1.9 billion hours of productivity. This is just the tip of the iceberg: compliance with the entire tax requires nearly 7 billion hours. To put it into perspective, the amount of time spent is equal to over 291 million days and over 797,000 years. All to figure out how much of our hard-earned money we owe Uncle Sam.
On top of all that lost productivity is the over $33 billion in estimated out-of-pocket costs taxpayers spent on software and professional tax preparation services. Lost productivity and the total economic value of the Tax Code compliance burden can be calculated at $263 billion. This staggering sum is more than the annual revenues of all but one of the Fortune 500 companies, and also surpasses the Gross Domestic Product (GDP) of 154 countries.
This inexcusable tax burden serves to demonstrate one undisputable fact: We are in dire need of tax reform that simplifies the tax code while at the same time boosts the nation’s economy through economic and job growth. The White House and the House GOP have both introduced similar tax reform plans that would do just that.
The House plan titled, “A Better Way,” consolidates the current seven individual income tax brackets, with its 39.6 percent top rate, into just three, with a top rate of 33 percent. By proposing reduced and progressive tax rates on capital gains, dividends and interest income, and the elimination of the alternative minimum tax and the estate tax, the plan aims to reduce the tax code’s complexity and compliance burdens.
The White House plan would also cut the number of individual income tax brackets to three with a top rate of 35 percent. Additionally, it would double the standard deduction, eliminate the estate tax, and eliminate the alternative minimum tax.
On the corporate side, both plans look to rectify a system that places American businesses at a distinct disadvantage in the global marketplace. The United States’ corporate tax rate is at 35 percent – 39 percent when you add in state tax rates – compared to the roughly 25 percent enjoyed by other Organization for Economic Co-operation and Development (OECD) countries. Furthermore, over the last few decades, those OECD countries have worked to reduce their tax rates, down from an average of 47 percent, as they look to attract new businesses and investment.
It’s certainly worked, but to the detriment of the U.S. economy. Looking for a level playing field, American businesses are on the hunt for friendly tax environments and unfortunately, that’s not the current state of affairs here at home. So, those businesses pull up stakes and move overseas to set up shop, taking much-needed jobs and investment dollars with them.
Looking to rectify that problem, both plans would drop the U.S. corporate tax rate, with the White House proposing 15 percent, the House 20 percent. This would be in addition to moving towards a territorial tax system, protecting American businesses from double taxation and discouraging inversions.
Over the last thirty years, the tax code has grown into one tangled mess that is being strangled in its own complexity. And it’s perilously close to taking taxpayers down with it. The White House and the House GOP have put forth bold pro-growth plans that would throw a life preserver to taxpayers and the economy. Let’s not sail past and do nothing. Congress and the Trump Administration must work together to pass permanent, comprehensive tax reform.
Demian Brady is the Director of Research for the National Taxpayers Union Foundation. Thinking of submitting an op-ed to the Washington Examiner? Be sure to read our guidelines on submissions.
