Addressing the nation’s jobs crisis is at the top of every politician’s to-do list. Laws must be passed! Laws must be repealed! Money must be handed out! Spending must be cut! Regulations must be added! Regulations must be scaled back! What is going on???
Unfortunately, this flurry of activity has created an even bigger problem: uncertainty. Businesses need a stable economy with clear-cut rules, evenly applied, in order to make decisions about their future. And with things changing rapidly, it’s very hard for them to do so – and unwise for them to expand, invest, or hire.
Suggestion #22: Create a permanent, low-rate tax system.
Both sides of the aisle have talked a big game about tax reform – usually, citing platitudes like “simplification” and “broadening the base.” Those are, indeed, important points – but no concrete proposal have surfaced beyond that, because the reality of the situation is pretty dangerous for a career politico.
The current complex code has a ton of exemptions and deductions from politically powerful constituents – all of who would be very angry to see their carve-outs disappear. Let’s remember – 47 percent of Americans don’t pay any income tax, thanks to deductions like the home mortgage income tax deduction, the earned income tax credit, and deductions for interest on student loans – and “simplification,” in practice, would mean that those loopholes would disappear.
Much like pulling off a Band-Aid, however, it’s time for the tax code to be cleaned up once and for all (I personally prefer a flat tax, although I realize there’s a contingent who like the fair tax – to each his own.) National Taxpayer Advocate Nina Olson told Congress in testimony last month:
Despite the existence of many narrow special interest tax breaks, the overwhelming majority of tax breaks by dollar value accrue to large segments of the taxpaying public. If tax rates are to be lowered substantially and overall tax liabilities on average are to remain unchanged, virtually every taxpayer will have to give up cherished tax breaks. There is simply no free lunch. Yet I am convinced the “busy majority” of taxpayers wants fundamental tax simplification and will support it. Lower tax rates will offset the loss of tax breaks, and at the same time, taxpayers will understand how their taxes are computed and will save time and money on return preparation.
With real tax reform, lobbyists would lose influence and taxpayers would save time and money in compliance costs. There’s no better way for the 112th Congress to show the American people that they’re committed to reforming the way Washington works than by a fundamental transformation of the tax code.