There was a transformational shift in American politics with the election of Donald Trump. Frustrated by the status quo, the electorate sent a message to Washington that it’s ready for a different path.
Americans are tired of Washington, and they are frustrated with the size and growth of the federal government. One thing they face every year is the 74,000-page tax code. With Donald Trump’s election and Republican majorities in Congress comes a generational opportunity on fundamental tax reform, one that could help create an atmosphere for meaningful economic growth and greater opportunities for all Americans.
It has been more than 30 years since Congress reformed the tax code. Since then, the tax code has grown more complex and onerous. The Tax Foundation estimated that Americans spent nearly 9 billion hours and spent $409 billion to comply with the tax code in 2016. The amount of money spent on tax compliance is greater than the gross domestic product of Maryland.
In their 1987 book, Showdown at Gucci Gulch: Lawmakers, Lobbyists, and the Unlikely Triumph of Tax Reform, journalists Alan Murray and Jeffrey Birnbaum described the unlikely atmosphere in Congress that lead to fundamental tax reform under President Ronald Reagan. According to the authors, “Gucci Gulch” is a reference to the hallways that lead to major committees in Congress, which are often filled with well-dressed lobbyists looking for their slice of taxpayer dollars or a carve out in the federal tax code, and they have been successful.
America has not had annual economic growth above 3 percent since 2005. The most recent economic downturn and subsequent anemic growth are evidence that Congress must move away from the tax-and-spend mentality that was pervasive during the Obama’s presidency.
Congress has already begun addressing some of the challenges that face our economy through regulatory reform initiatives, but this only scratches the surface. If we want to reinvigorate our economy, make America more competitive on the international stage and see American workers get a raise, Congress must fundamentally reform and simplify the tax code and structure.
Fundamental tax reform would eliminate all or most loopholes in the tax code — including tax deductions and credits — to broaden the tax base while using the expected revenue to the federal government to lower tax rates. Ideally, we would scrap the current seven income tax rate system and creating a system, with as few as two or three rates, under which individuals, families, and business owners can prosper.
We have a chance to simplify the system, allowing Americans to fill out their return on an easy-to-understand postcard. Instead of wondering whether one is overpaying taxes by thousands of dollars because of missed credits or deductions or paying a tax preparer hundreds or thousands of dollars to prepare a tax return, a taxpayer can just fill out a few numbers, do the math, and pay the taxman with certainty.
Not only do we have a chance to reform the individual tax system, but Congress can reform and lower corporate taxes. Our corporate income tax rate is one of the highest in the world. Regulatory reform may be one way to help bring businesses back to the United States, but an overhaul of the corporate tax rate and the creation of a climate in which businesses can thrive, is just as important. Reducing the capital gains tax to encourage investment and job growth is also a necessity in any fundamental tax reform plan.
America needs more than a tax cut. Congress can’t only nibble around the edges if we hope to see sustainable and lasting economic growth that increases Americans’ wages and produces more jobs. We need a complete restructuring and simplification of the tax code, both individual and corporate, to make our great nation truly competitive again.
Adam Brandon is the president of FreedomWorks.