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October 29, 2014

Reforming Tax Reform Thinking

 

Politico reports that in a recent interview House Majority Leader Kevin McCarthy indicated he is willing to seek tax changes in the next Congress even if the GOP has yet to agree on more comprehensive tax reform legislation. That is good news because comprehensive reform should be the goal, not necessarily one piece of comprehensive legislation. Incremental reforms could make a big difference.
 
Over a decade ago, IPI launched the Road Map to Tax Reform™ Series featuring a number of studies that explained how to achieve real tax reform in various areas of taxation. Taken together, the Roadmap is comprehensive tax reform. Individually, each piece stands on its own as a positive step on the road to reform. Several address issues in the current news cycles.
 
For example, the IRS and privacy was addressed by Dan Mitchell in “Tax Reform: The Key to Preserving Privacy and Competition in a Global Economy.”  He wrote: “If a bunch of snoops sat down to design an intrusive tax system, they would have a hard time coming up with something worse than the Internal Revenue Code. In every possible way, today’s tax system requires taxpayers to make unlimited disclosures of information to government. But while it may seem as if the tax code was created to undermine privacy, this is not the case. In almost every instance, the forced disclosure of intimate financial information is the inadvertent—yet inevitable—result of bad tax policy. More specifically, Americans are forced to tell government officials about their private finances largely because the tax code has a misguided definition of income. This sloppy approach results in some income being taxed two or more times, some income being over-stated, and some assets being taxed.”
 
Another example, Margo Thorning wrote in “U.S. Capital Formation: How the U.S. Tax Code Discourages Investment”: “As with past generations, one of our major responsibilities is to lay a strong economic base for future generations. The U.S. tax code treats saving and investment very harshly and thus hampers our ability to maintain the strong economic base that will be needed in the coming years in the face of changing demographics and geopolitics. In addition, our tax code hits saving and investment harder than those of many of our international competitors. The foreign-source income of U.S. multinationals is also subject to higher taxes than that of many of our competitors. All of these factors should be of increasing concern to U.S. policymakers as globalization continues.”
 
For years these problems have been identified and solutions proposed, but little has been done to reform the tax code for the betterment of all taxpayers. Targeted legislation can address these problems and also move us firmly toward real tax reform without waiting for one comprehensive proposal—a proposal that will likely get bogged down once again in legislative machinations delaying a sorely needed economic turnaround.


 

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