Today is the deadline for Americans to file their taxes. A day that is no doubt full of anxiety and trepidation for all too many families and businesses.
Do you know how much money you owe? What income bracket you are in? What percentage of your income goes to the government each paycheck? Which tax credits and deductions you are eligible to claim? Is your family or business able to manage the overwhelming process of filing without the help of an outside source? 1099, W2, 1040, W4, 3903, 2106—the forms can seem endless.
Each year, families and businesses across the country forge through mountains of forms and receipts, attempting to properly navigate their tax returns. “Tax Day” is the day where we are all made keenly aware of how complicated and broken our tax system is.
At over 72,500 pages, our tax code has become a broken maze of complexity, bureaucracy and political favoritism, and it has to be fixed. We need a tax code that is simple and fair for all Americans.
Just this past month, the House passed a budget that will reform our broken tax code to spur job creation and economic opportunity by lowering rates, closing loopholes, and putting hardworking taxpayers ahead of special interests.
Here is the breakdown of our vision for how we can fix our broken system with a fair, simple and competitive tax code:
Fair Tax Code
The Republican budget proposes lower rates for all Americans to promote growth and it also proposes to roll back deductions that go overwhelmingly to a relatively small class of mostly higher-income individuals. The value of tax preferences is often very low for lower-income individuals but they sum to the tens of thousands to hundreds of thousands for upper-income Americans. Without the benefit of these special deductions and credits that serve to minimize taxable income, upper-income individuals could pay roughly the same amount they pay now even at a lower tax rate. This budget plan also proposes to eliminate the carve-outs and loopholes that have allowed some corporations to avoid paying taxes altogether.
The tax code is full of deductions, credits and loopholes that let politically-connected companies avoid paying taxes. Every dollar that businesses spend lobbying for a better tax deal is a dollar they’re not spending on making a better product. And, since every dollar hidden in a loophole doesn’t get taxed – politicians make up for this lost revenue by increasing overall tax rates. So we need to close these loopholes. The federal corporate tax rate is 35 percent, which is very high–compared to other industrialized nations. If we add state and local taxes, the corporate tax rates can climb up to 39.2 percent – the second highest tax rate among developed countries. On top of sending almost 40 cents out of every dollar earned to the government, businesses pay additional taxes including investment taxes and payroll taxes. If we are going to get America working again, America has to be a great place to do business.
Simple Tax Code
Individuals and businesses spend over six billion hours and $160 billion every year, trying to understand and comply with the tax code. Congress should simplify the tax code, not just by closing loopholes, but also decreasing the number of different tax brackets. Fewer brackets, along with lower individual rates, will make the tax code less complicated, and let more people keep more of the money they earn. America has had tough recessions before and we know that the secret to growing jobs and prosperity in America are through the ingenuity and the hard work of our businesses – of our small businesses, of our large businesses, of job creators. Our tax system should not reward people for coming to Washington and getting special favors. We want a tax system that rewards Americans for hard work, risk taking, entrepreneurship, investment and innovation. These ideas made America great in the past. We need these kinds of ideas going forward if we want to grow our economy in the future and compete in the 21st century global economy.
Competitive Tax Code
The budget we passed in the House of Representatives calls for closing loopholes and lowering the tax rates. The President’s bipartisan Fiscal Commission proposed something similar. Its plan would reduce the corporate tax rate to as low as 26 percent, and to lower the top individual rate that many small businesses pay to as low as 23 percent. If we lower tax rates, does that mean the wealthy pay less in taxes? It does not if we close loopholes. The people who use most of the loopholes are those in the top tax brackets. The money parked in these tax loopholes is taxed at zero. If you take away the tax loophole and lower everybody’s tax rates, that money is taxed. It is taxed at a fair, more simple, more competitive tax rate so they can compete in this global economy. The President, however, has proposed increasing the top individual tax rate to as much as 50.6 percent. This would be a direct hit on small businesses, as many businesses pay the individual income tax, not the corporate income tax.