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FreedomWorks President Adam Brandon released the following statement about FreedomWorks' Six Principles for Fundamental Tax Reform:
“Congress has an opportunity to pass fundamental, pro-growth tax reform this year. We do not expect a tax reform bill that gives us everything we want, but we do have some basic principles for tax reform that will guide our support in the tax reform debate. Tax reform should be budget-neutral, not revenue-neutral. What will help our economy to thrive is a simpler structure, a broader tax base, lower rates, and fewer loopholes and deductions. This will put money in the pockets of all Americans, allowing businesses, large and small, to expand and innovate, and create opportunities that are needed after eight years of heavy tax and regulatory burdens that have prevented meaningful economic growth.”
Six Principles for Fundamental Tax Reform
Nearly ten years after the end of the Great Recession, America’s economy is still struggling to gain momentum. The heavy-handed tax and regulatory of policies of the past eight years have harmed entrepreneurs’ ability to innovate, expand, and hire new workers.
The United States has not seen annual economic growth of 3 percent or higher since 2005. While the unemployment rate is finally back to pre-recession levels, wage growth isn’t keeping up with inflation because of the lack of meaningful economic growth.
The 115th Congress has a once-in-a-generation opportunity to create an economic atmosphere in which American workers and businesses, large and small, can thrive. Since 1986, when Congress passed the Tax Reform Act, the tax code has become more complex. Tax increases passed at the end of the 112th Congress in so-called “American Tax Relief Act” have only worsened tax complexity and stifled economic growth.
President Donald Trump, Speaker Paul Ryan (R-Wis.), and Senate Majority Leader Mitch McConnell (R-Ky.) can bring the tax code into the 21st Century, restore America’s competitiveness in the world, and achieve economic growth above 3 percent by, among other policy priorities, lowering tax rates and broadening the tax base. This includes lowering individual tax rates, reducing the corporate income tax burden, and simplifying the tax code. The policies below are the starting point for fundamental tax reform, which FreedomWorks hopes to see Congress accomplish this year.
Broaden the Tax Base: The approach Congress should take is: drain the swamp. The tax code is riddled with special interest tax breaks, deductions, and credits that reek of cronyism and put more of the tax burden on hardworking Americans and entrepreneurs. The foundation for a good and fair tax policy is a broad base, with as few deductions and tax credits as possible.
Ideally, Congress would increase the standard deduction for all taxpayers and keep in place few deductions, such as the charitable tax deduction, but eliminate the mortgage interest deduction, the federal deduction for paid state and local tax, and most other deductions.
Lower and Consolidate Individual Tax Rates: The goal should be to take the projected revenue from broadening the tax base and use it to create a tax structure with as few brackets as possible, scrapping the current seven-tier tax bracket system created under the American Tax Relief Act in January 2013. Consolidating tax brackets will make the system easier to administer and promote fairness.
Provided rates are kept reasonably low, fewer burdensome tax brackets would also boost household incomes, putting more of the money that they earned into their pockets. This will give Americans more purchasing power, as well as more money to save, and create more opportunities for businesses to invest and expand, which will, in turn, create more jobs.
Reduce Corporate Tax and Investment Tax Rates: The United States’ corporate income tax is among the highest in the world, and, along with Washington’s proclivity for regulation, is driving businesses overseas through offshoring and inversions. Congress should simplify the corporate tax code and reduce rates to encourage investment at home. Additionally, Congress must reduce the capital gains tax to encourage Americans to invest their dollars in the economy.
Simplify the Tax Code: Today, there are nearly 75,000 pages in the tax code, up from 26,300 in 1984. In 2016, Americans spent nearly 9 billion hours complying with the onerous tax code, at a cost of $409 billion to the economy, which is greater than the gross domestic product of the state of Maryland.
Because Congress has failed to reform the tax code, pages have continued to be added, making tax season a dreaded time for Americans. Simplification of the tax code and reducing compliance burdens should be a top priority of any tax reform effort the 115th Congress undertakes. The tax system should be so easy to understand that Americans can file their return on the back of a postcard.
Repatriation of Overseas Cash: By some estimates, there is nearly $2.5 trillion in profits overseas, money that could be invested right here in America. Because the United States’ corporate income tax is so burdensome, companies are holding these profits in friendlier climates. Even as Congress takes the important step of corporate income tax reform, lawmakers should incentivize the repatriation of these overseas profits to the United States with a special, low-rate tax holiday.
Budget-Neutrality, Not Revenue-Neutrality: Making tax reform revenue-neutral is the answer to the wrong question. If tax reform is attempted under budget reconciliation, Congress should seek to make the proposal budget-neutral. This ensures that tax reform will not increase the budget deficit. If changes to the tax code will lower revenues to the Treasury, Congress should seek to lower the deficit through cuts to outlays over the ten-year budget window.
After eight years of struggling to fully recover from the Great Recession, Congress must take a new approach, one that fundamentally reforms the tax code and promotes economic growth. In addition to the six principles above, Congress should also repeal the estate tax and gift tax, which discourage investment and job growth, and the individual and corporate alternative minimum tax, which add to tax complexity.
With this generational opportunity before us, FreedomWorks is committed to work on advancing fundamental tax reform in Congress in 2017.