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6 ways to make tax reform happen

The year 2013 just might be the year that tax reform gets done in the United States. Key members of both parties in Congress say they are committed to passing such legislation. President Obama is calling for it. And fixing the tax code is an integral part of fixing the federal deficit and debt.

To withstand the political pressure of special interests that want to preserve their own tax goodies, reform must be broad and produce tangible benefits for taxpayers, such as lower rates and a simpler code. Today, preparing tax returns and complying with tax law consumes 6.1 billion hours every year, the equivalent of 3 million full-time workers, imposing costs on taxpayers of about $168 billion (yes, with a “b”).

Here at the Bipartisan Policy Center, we’ve put together six ideas that can guide Congress to a deal that both parties should be able to live with, a deal that will raise necessary revenue and help pay down the debt.

1. Reduce rates for individuals and corporations

Jae C. Hong/AP
Dressed as the Statue of Liberty, part-time employee Zidkijah Zabad waves to passing motorists while holding a sign to advertise for Liberty Tax Service in Los Angeles Jan. 22. Op-ed contributor Steve Bell writes: 'To withstand the political pressure of special interests that want to preserve their own tax goodies, reform must be broad and produce tangible benefits for taxpayers.'

Including state and local taxes, the US now has the highest statutory corporate tax rate in the industrialized world, stifling investment in America. That rate must come down.  And lowering individual rates would improve incentives to work and encourage economic growth. 

The Bipartisan Policy Center’s Debt Reduction Task Force, chaired by former Senate Budget Committee Chairman Pete Domenici, a Republican, and former White House Budget Director Alice Rivlin, a Democrat, recommends lowering the top rate for both individuals and corporations down to 28 percent. This would be part of a larger package that would eliminate or reform a host of tax breaks, simplify the code, and raise revenue.

Equalizing the top rates would also eliminate incentives to vary corporate structures for the sole purpose of better tax treatment (currently a deadweight loss to the economy).

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Mark Sappenfield
Editor

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