“Do you believe the U.S. federal income tax code needs to be reformed? If so, what are the elements of reform you would like to see?”
Paul Bremmer – Wash D.C., St. Bonaventure University 2012 Graduate, Bio
I think the federal income tax code needs to do more to encourage saving and investment, which are good for the economy. Therefore, the government should not tax interest earned from savings accounts. Nor should bond payments or capital gains be taxed. If people want to save for their future or invest in a corporation or government, they should be rewarded, not penalized.
Also, the tax code should be made simpler so people have greater confidence that their neighbors are not gaming the system to avoid paying taxes. A good way to do this would be to eliminate most deductions, leaving only a few obvious ones such as the charitable contributions deduction, the mortgage interest deduction, and the higher education expenses deduction.
Arianna Mendez – FL, Florida International University 2014 Masters Degree, Bio
Recent allegations of political targeting of conservative and tea party groups have put into question not only the impartiality and fairness of the Internal Revenue Service (IRS), but the effectiveness of the current tax code. The United States tax code is peppered with confusing rules and limitations garnished with loopholes, deductions, and credits.
Americans seem to have little affection for this government agency. According to Gallup, the IRS is the most unpopular of all government agencies and for good reason. With almost arbitrary and seemingly limitless power, the IRS can seize your bank account and shut down your business overnight.
Unfortunately, the scandals are just a side effect of a bigger and more urgent problem. Our tax code needs to be simplified and modified. In the last decade alone, there have been more than 4,400 changes to the tax code (approximately one per day).
There is no continuity or consistency to the tax code as loopholes, limitations, and deductions are constantly in flux. We need to overhaul the tax code in a way that reduces the number of tax brackets and corporate income tax rates while eliminating special exceptions.
Earlier this year, Congressman Dave Camp (R-Mich.), chairman of the House Ways and Means Committee, introduced a comprehensive tax reform plan that lowers tax rates, lowers the corporate tax rate, phases out certain exceptions, and makes reforms to retirement savings plans. According to the Joint Committee on Taxation, if implemented, this proposal could be conducive to economic growth and a more progressive tax system.
The Camp plan is a good starting point for a meaningful tax reform discussion. The plan calls for three tax brackets (10%, 25%, and 35%) instead of the current seven tax brackets (10%, 15%, 25%, 28%, 33%, 35%, and 39.6%).
In a revamped tax code, the 35% bracket would apply to individuals who make more than $400,000 or couples who exceed $450,000. A proposal similar to the Camp plan would reduce the number of tax brackets and lower America’s corporate income tax rate from 35% to 25% (currently the highest in the developed world).
I know all this tax jargon can be a bit confusing. The question you must be asking is what would these changes mean for you and me? Under such a tax reform plan, the middle class would keep more of their income.
Increased disposable income would stimulate the economy, because there would be more demand for goods and services. Higher demand for goods and services would in turn increase tax revenues for the federal government. We need a simplified tax code that is understandable and fairer to all Americans and continues to fund our federal programs and benefits.
Nana Osei – SC, College of Charleston Student, Bio
The U.S. federal income tax code needs to be reformed due to the issues and problems it has faced, especially in recent years. The Internal Revenue Service is currently under extreme investigations and is in the middle of a court case for loosing emails of taxation records. Along with these hurdles, the IRS has been deemed the most unpopular government agency, and it is often accused of spying on government officials.
The tax code is extremely complicated and is forever changing causing large confusion. Over the past 10 years, the tax code has been changed over 4,400 times.
Change that needs to be made with the tax code is making the rules more stable and consistent. Reform is almost inevitable with the Finance Committee working diligently to alter issues like unfair tax breaks and to increase jobs. President Obama has addressed the issue by delegating it to the Senate Finance Committee with specified goals.
The objectives and changes that must occur are simplifying the extremely complex tax code. The actual filing tax code documents are too confusing for many taxpayers to complete correctly. This is a major issue when honest taxpayers can’t successfully file their taxes.
Reforming the tax code is an extremely difficult process that can take time; however, with its productivity rate and unpopularity, the current federal tax code most be reformed.
It must be reformed to better America’s tax revenues and Americans use of money. Wasting time and money on an extremely difficult system is frustrating and stagnant.
Pete Vujovich – MN, University of Minnesota 2011 Graduate, Bio
The American tax code absolutely needs to be reformed. But we cannot focus solely on reforming the income tax code. If the purpose of the reforms is to balance the deficit the first place we need to look is at corporate subsidies.
Simply saying that our corporate tax rates are the highest in the industrialized world misses a huge part of the equation. Conservative estimates say the US gives out $100 billion per year in subsidies to corporations. This would go a long way towards balancing the already shrinking deficit, without raising taxes on hard working families. Creating these loopholes has allowed companies to cut their tax rates in half over the last 10 years while moving almost 3 million jobs overseas. While the corporate subsidies were originally well intentioned, they are not serving their purpose of creating jobs, and this needs to be addressed.
Programs like these have produced the largest income inequality this country has ever seen, which has dramatically slowed the economic recovery. We need to build a tax code which promotes consumer spending rooted in the middle class. This is the basis of our economy and continuing the direction we are on now will only harm our economic recovery.
Second, we need to make the tax code more accessible for average families by simplifying the process. For example, there are 15 different education tax breaks, which are explained by the IRS in a 90 page document. And this is only one section of the tax code. Simplifying this process will help average families understand what breaks they are eligible for, and be more confident in how they are filling out their return. It is a common sense part of reform that is absolutely critical to the package as a whole.
Lana Lake – MT, Montana State University 2014 Graduate, Bio
Every year, Americans spend over 6 billion hours filing their taxes. According to national taxpayer advocate Nina Olson, “If tax compliance were an industry, it would be one of the largest in the United States. To consume 6.1 billion hours, the ‘tax industry’ requires the equivalent of more than three million full-time workers.”
While I am no expert to the intricacies of tax code, it is apparent that our tax system is complicated and filled with complex compliances that leave the average American little choice but to seek out professional help. The IRS even admits that the personal expense of filing taxes costs American citizens a total of over $168 billion a year.
Here are my suggestions:
Simplify the Tax Code
A form of flat tax, as suggested by many top analysts and politicians would help alleviate the complexity of determining tax level. A flat rate between 15%-20% would create simplicity and fairness.
Streamline Standard Deduction Options
The “Standard Deduction” section is constantly changing. New deductions, levels of deductions, and exemptions are introduced each year. Eliminating this section in its entirety is a step in the right direction. However, exemptions for dependents should remain in place.
Eliminate Tax Refunds
Tax refunds would be unnecessary if the government did not over charge citizens in the first place. The Tax Foundations estimates that “current tax expenditures cost the government $1.09 trillion dollars in lost revenue.” Generating refunds only costs more taxpayer money.
Our tax system is overly burdensome and a difficult topic to address. Top politicians and advocates have passed some reform, but more work is desperately needed. As shown in the graphic below, our current tax system is amended frequently, but the amendments have only added to the staggering compliance requirements and complexity of tax codes.
The tax system needs a complete overhaul. If a system is broken, patchwork may help alleviate some short-term problems, but will do nothing to create lasting change. We need real reform to address the difficult problems that compound daily with current tax laws.
Jordan Hibbs – AZ, Barrett Honor College at Arizona State University 2014 Graduate, Pursuing Masters Degree, Bio
I do believe the U.S. federal income tax code needs to be reformed. To fix it, our policies must benefit all Americans, not just the richest one percent or corporations. Our system works when everyone gets a fair shot, everyone gives their fair share, and everyone plays by the same rules. Currently, the tax burden on working families is increasing, while the wealthy and large corporations pocket more and more tax breaks, and that’s wrong. We need to focus reforms on the principle of equal opportunity, because everyone should pay their fair share. By working to identify and cut the tax breaks and loopholes that benefit a few at the expense of the rest of us, we will begin to shift toward a level playing field for everyone.
Photo Credit – Stuart Miles