Tax Reform for Dummies

Policy

Every politician promises tax reform. But what does this really mean?

By: Joe Miller

Despite the important role of taxes in everyday lives, the average person pays little attention to the complexities of the current system.

Taxes fund the vital operations of government at the federal, state and local level, financing schools, community projects and public infrastructure, among other projects. The United States uses a variety of taxes, such as sales taxes on goods bought in stores, income taxes on an individual’s paid work, and property taxes on homes.

There is little debate about the function of taxes, but opinions differ about what to tax and how much to tax it.  A decades-long ideological war has been waged in the fight for tax reform, with two sides struggling to push an agenda consistent with a broader system of values. Tax reform discussions involve large-scale structural shifts in the U.S. tax code, in addition to changing the effective tax rates. Both parties, however, look to create reform in a way that boosts economic opportunity for all Americans.

Tom Sands, President and CEO of the nonpartisan Iowa Taxpayers Association, said, “In a reform package, you try to equalize and make sure it’s fair to everyone across the board.”

The hands-off, free-market approach to government that conservatives employ often clashes with the liberals’ stimulus investment approach in a variety of contexts. But never is the divide more evident than in the debate about tax reform.

The modern conversation surrounding tax reform isn’t simply about dollars and cents. On the conservative side, the push is centered on a proposed simplification of the overall tax code. Speaker of the House Paul Ryan’s tax plan, known as “A Better Way,” reduces the number of total tax brackets and shrinks the filing forms down to the size of a postcard. These reforms are meant to put more money in the pockets of consumers and more investment dollars in American businesses, all while remaining deficit neutral.

Sands believes in growth-boosting tax cuts, saying, “We, the United States, tend to be a little higher in corporate income tax rates and what it does is push more of the corporate money overseas, and we need that money back here working for America.”

On the progressive side, the push is about economic justice and equality. With the rise of corporate lobbying and money in politics, the U.S. tax code has found itself riddled with exemptions and loopholes. Billionaires and corporations can bypass paying billions of dollars in income earned in the U.S. by storing their assets in foreign countries such as the Bahamas or Switzerland.

The focus among liberal lawmakers is on ensuring everyone pays their fair share in taxes so that spending can increase in areas such as healthcare and education.

On Twitter, President Trump has promised to deliver the largest tax cut in U.S. history. The current plan rolled out by the new administration involves a 15% cut in the corporate tax rate, reducing the number of tax brackets from seven to three, and eliminating deductions for state and local taxes.

A push for tax reform will be an uphill battle, but it remains a keystone of the policy agenda for the new president and the Republican-controlled Congress.

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