Reform the Tax Code

The tax code should exist only to collect the resources needed to fund the constitutionally appropriate functions of government, but that’s not what our sprawling tax code does today. Instead, our Internal Revenue Service sometimes seems to exist to scrutinize and participate in practically every instance of economic activity under the sun, posing a significant impediment to growth in the process.

At 4 million words in length, the U.S. Tax code is longer than the King James Bible. Each year, it hits taxpayers with $225 billion in compliance costs alone. This complexity costs jobs on Main Street, but it is a form of protection for corporate lobbyists and their clients.

Despite the clear need for fundamental reform, policymakers demonstrate little sense of urgency about implementing wholesale change. Occasional tweaks in tax policy occur due to action-forcing mechanisms such as the recent “fiscal cliff” or intense lobbying for targeted loopholes. Aside from rate changes and carve-outs resulting from those unique circumstances, little progress has been made in reforming the tax code since the 1980s.

Several of the existing loopholes that shrink the tax base and drive rates higher—the employer-provided health insurance exclusion, for example—are accidents of history. Others are necessary to reduce government meddling in the lives of families and businesses. Many, however, are the hard-fought gains of various industries that recognize that preferential tax treatment by government can be a more effective pathway to success in the market than hard work or innovation.

Some of those loopholes are born through procedures such as the annual “tax extender” process, whereby a series of provisions are passed by Congress in a package despite the fact that few would generate sufficient support if proposed in isolation. Liberals have mastered the art of using such “must pass” bills to their advantage in seeking special breaks, and conservatives have struggled to muster the resolve to oppose such packages on principle. It will take substantial political resolve to stand up to the various industries that benefit, with the help of liberals, from treatment that no other Americans receive. It’s time to end such unfairness.

The tax code our nation deserves would unleash opportunity for all. The outlines of reform are clear: Lower rates and broaden the tax base. But the mentality behind it is deeper. Ronald Reagan once said, “There are no great limits to growth because there are no limits of human intelligence, imagination and wonder.” That is the America we should be striving for: one that leaves resources in the hands of our fellow citizens to pursue their ideas, exercise their imagination, and achieve their dreams.

America would do well to end the tax code’s bias against saving, instead taxing income only upon consumption. It is hardly fair to tax those who live frugally and responsibly, developing a personal safety net and a nest egg for their children, as much as we tax those who do little to insulate themselves from long-term financial distress.

Most important of all, a reformed code with a flat, fair rate would lighten the burdens on all Americans, both in compliance with the existing code’s complications and in the share of income sacrificed each year to the IRS. With a struggling economy and a weak job market, we need a code that unshackles the private sector and allows businesses and workers to operate in a predictable, low-burden environment.

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