Serious work on federal tax reform is encouraging, as the best way to strengthen families, support small business growth and job creation and boost our national economy is to enact pro-growth comprehensive tax reform. The tax code is weighing us down and in need of comprehensive reform to lower the burden on all Americans and make the tax code fairer, flatter and simpler.
We would be hard pressed to create a tax code that is more complex, more costly to comply with, unfair and anti-competitive for American businesses than what we have right now:
• Complexity — The Taxpayer Advocate Service (TAS), an independent office within the Internal Revenue Service (IRS) with the job of working to ensure that taxpayers know their rights, is required to submit a report to Congress annually that identifies the most serious problems encountered by taxpayers. In its 2016 report, TAS called on Congress to vastly simplify the tax code, finding that, “Congress has made more than 5,900 changes to the code — an average of more than one a day — just since 2001. The compliance burdens the tax code imposes on taxpayers and the IRS alike are overwhelming.”
• Compliance Difficulty — The complexity is costing Americans considerable time and money in addition to their tax burden just to try to ensure that they file correctly. TAS reported that taxpayers and businesses spend about six billion hours a year complying with tax-filing requirements. TAS found that the complexity of the tax code is causing more than half of individual taxpayers to pay professionals to prepare their returns, and 40 percent of taxpayers use tax software.
• Unfair and Anti-competitive — While virtually every other developed country has modernized its corporate tax code in the last 20 years in order to make their businesses more competitive in the international marketplace, the U.S. has stood back and allowed its corporate tax rate to become the highest rate in the industrialized world. Growing evidence shows this should not be considered just a problem for big corporations. Economic research and modeling, including by the nonpartisan Congressional Budget Office (CBO) and Joint Committee on Taxation, has begun to conclude that a much greater share than previously thought of the burden of high corporate tax rates is borne not by the companies and their shareholders, but by the American workers in those companies, who face lower wages and fewer job opportunities as a result of higher corporate taxes. The CBO has cited analysis showing that workers carry as much as 70 percent of the burden of the corporate income tax.
To do tax reform right, we must go beyond the simple traditional tax cut debate and instead comprehensively address each one of these problems within the tax code. For years, I have worked, through my committee assignments, the Bowles Simpson Commission and the Gang of Six, to craft solutions for comprehensive tax reform. While lowering rates is important, it must not be the sole focus for Congress in its tax reform deliberations, and must not be the sole measure taxpayers use for evaluating what tax reform means for them. We must address each one of these problems with the current tax code and present to the American taxpayer a reformed code with an emphasis on lower rates, broadening the base, reducing complexity, and eliminating anti-competitive provisions.
I will continue to press for these objectives as tax reform is debated in Congress. Tax policy should not be so complex that it requires such strain and expense on Americans. This is your money, and you deserve to have a clear tax code that respects that.
Mike Crapo is a Republican U.S. senator who represents Idaho in Congress.