The Republican tax reform framework isn’t perfect, but it makes several encouraging changes. All taxpayers would benefit from a stronger, more vibrant economy, and that is what this framework provides.
Strong tax reform should benefit more than just the wealthy, and that is precisely what this reform plan does. The framework promises to simplify the tax code significantly, allowing Americans to submit their taxes on a single page. About 54 percent the country currently pay a tax preparer to do their taxes for them, and another 40 percent use tax preparation software, according to the IRS Taxpayer Advocate. Simplifying the tax code isn’t just about saving time, it’s also about saving them money.
The plan also roughly doubles the standard deduction from $6,350 to $12,000. Standard deductions are generally claimed by lower-income taxpayers; only 30 percent of Americans claimed the itemized deductions in 2014, and three-quarters of those who itemized had an adjusted gross income of $50,000 or more. Even with the elimination of certain exemptions, doubling the standard deduction means tax reform will benefit most lower-income taxpayers.
Tax reform would also benefit businesses of all sizes. Pass-through businesses, or businesses whose income “passes through” to owners to be taxed at the individual level, currently make up about 95 percent of all businesses. Because this category of business includes sole proprietorships and partnerships, many pass-through businesses are smaller. Under the Republican tax reform framework, pass-through businesses would see federal tax rates decline from a current high of 39.6 percent to 25 percent.
Simplification of the corporate tax code would also be a major boon to small businesses. While businesses spend on average around $960 per worker on tax compliance, small businesses spend more than 50 percent more, around $1,518 per worker. Reducing these onerous compliance costs by eliminating deductions and simplifying the process of filing taxes would help smaller businesses to be more productive.
Of course, this is not the time for those concerned about tax reform to become complacent. There are still numerous unknowns that are being left up to Congress. For example, we know that there will be tax brackets of 12 percent, 25 percent, and 35 percent, but we do not know at what income levels those brackets will be set. How long businesses are able to take advantage of full cost recovery, precisely which itemized deductions will be eliminated, and which business tax credits will remain, will be determined by Congressional negotiators in the coming weeks and months.
This tax reform framework is not yet a touchdown. It’s more like an 18-yard run on the first carry of the game, an encouraging sign in the pursuit of a touchdown, but only the first of many plays necessary to get there. The president and congressional leaders have made a commitment to reducing the tax burden on Americans, simplifying our complex and confusing tax code, and encouraging real growth for our economy. For that, the Republican framework deserves praise.
Andrew Wilford (@PolicyWilford) is a contributor to the Washington Examiner’s Beltway Confidential blog. He is an associate policy analyst at the National Taxpayers Union.
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