Individual Tax Reform Will Save Taxpayers Time and Money

Ross Marchand

September 26, 2017

September 26 through October 1 is Tax Reform Week for the Taxpayers Protection Alliance (TPA).  Leading up to, and after our press conference with the National Taxpayers Union on Thursday, September 28 at 10:15 am at the House Triangle (media advisory here), TPA will be highlighting the need for comprehensive tax reform.  Our first installment outlines the importance of individual tax reform.

The outdated federal tax code has swelled to 75,000 pages in length, growing nearly 1,000 pages each year. Tax law is riddled with gargantuan loopholes that inflict a double whammy on taxpayers. Tax credits designed to promote specific behaviors result in some taxpayers subsidizing others, in an endless bout of lifestyle engineering from Washington DC. And, in the case of tax deductions such as the home interest exemption, loopholes distort economic outcomes and lead to bubbles forming and popping in key sectors. The plethora of carve-outs causes a headache at tax season, with tax preparation being a largely regressivetime-consuming, and expensive process.

Eager to change this failed status-quo, Congress and the Trump Administration will attempt a gargantuan rewrite of the tax code (the first since 1986).

The plan unveiled by the “Big Six” will supposedly do that, lowering individual and pass-through tax rates. In a big step forward, lawmakers proposed cutting the top individual tax rate to 35 percent and the small business “pass through” rate to 25 percent.

While any tax cut that impacts the top rate will inevitably billed as a “giveaway to the millionaires and billionaires,” taxpayers of all incomes will benefit from these changes.

According to an analysis of tax returns by policy analyst Robert Carroll over the 1999 to 2007 period, half of workers who earned $1 million a year did so just once over the eight-year period. A mere 6 percent were consistent millionaires over that time period. This volatility reflects an entrepreneurial economy, where a banner business year could be followed by a lull in sales. But, in taking the risks to keep businesses afloat, small business owners and entrepreneurs need assurances that their income won’t be taxed away. Individuals, after all, respond to incentives, and it doesn’t take much to demotivate an innovator from bringing his product to market.

The Taxpayer Advocate Service estimates that taxpayers spend more than 6 billion hours complying with the Tax Code. In estimating the value of that time, the National Taxpayers Union Foundation (NTUF) calculates that an astounding $262 billion is lost to tax compliance each year. In the absence of comprehensive tax reform, that figure will only increase year after year.

Tax reform can only succeed by reducing the number of brackets for individuals, ensuring that the federal government no longer punishes hard-working people willing to work overtime to increase their salaries. At a time when federal spending is at record-high levels and government expenditure accomplishes little, it’s time to put bureaucrats on a budget.

Welfare spending is terribly targeted, rarely reaching the people that need it the most. The Government Accountability Office (GAO) continues to designate new areas at “high risk” for waste and abuse. If individual taxpayers cannot even be assured that their money will serve a legitimate function of government, than current levels of taxation are unwarranted and unreasonable. It’s time to enact tax reform that will alleviate burdens on individual taxpayers, and present the right incentives for growth and prosperity.