If you're feeling overwhelmed this Tax Day, you're not alone. The complexity of our tax code isn't just a nuisance for families and businesses -- it's a drag on our entire economy. Each year, Americans spend billions of dollars and more than 225 million collective hours doing their taxes. And each year, there's talk of making our tax code far simpler, talk that rarely goes anywhere. This year, however, there is a real chance that we can turn our overwhelming tax code into a simpler one that unleashes productivity, saves families time and money, helps us create jobs, and reduces the deficit.
We all know that our tax code is a mountain of rules and regulations, full of obscure loopholes and preferences, and sometimes almost impossible to navigate without a tax professional. The complexity of the code is, in large part, the artifact of generations of writing special loopholes into law. But that complexity comes at a high cost. The most obvious cost is the time and money spent each year on tax preparation, time and money that entrepreneurs could put to better use investing in innovation and job creation.
There's another cost, as well: the more complicated the tax code, the more likely businesses and families are to make decisions not based on what's best for them, but on how they can maximize their tax write-offs. In other words, the tax code distorts our economic activity, keeping families from making the choices they feel are best for their children's futures, and keeping businesses from pursuing the strategies that best help them grow and create jobs.
Economists across the political spectrum agree that a less time-consuming, economy-distorting tax code would spark significant economic growth.
Tax reform would dramatically simplify the code, and in return for fewer loopholes, tax rates would go down. That was the general outline of the bipartisan plan agreed to by President Reagan and Speaker O'Neill in 1986. And it's the outline of the tax reform plans on the political radar today, which could clear away many of the tax preferences that have crowded into the tax code in the last 25 years. A commission under President George W. Bush recommended that kind of tax simplification -- and so did the bipartisan fiscal responsibility commission appointed by President Barack Obama.
But even though leaders in both parties agree on the importance of tax reform, their approaches to the problem shed an important light on their priorities. The budget plan recently put forward by Republicans give trillions of dollars in further tax cuts to the wealthiest among us -- leaving a big hole in our budget. I find that windfall and the accompanying deficits hard to justify at a time when tax receipts are at their lowest point in six decades and income inequality is at its highest point since the 1920s.
But even worse are the harsh sacrifices that Republican plan imposes on working families. The Republican plan ends the Medicare guarantee, transforming it into a system that will provide seniors with less coverage each year, and raises their health care costs. It also dismantles Medicaid, putting many seniors' nursing home care at risk and cutting off care for the poor and disabled. Republicans have made their priorities very clear: they put their high-income tax breaks directly on the backs of the elderly and the middle class. And at the same time, Republicans spend so much on those tax breaks that their plan does not balance the budget for decades -- decades during which our debt will continue to grow.
There is a better, fairer way. As President Obama argued in his recent speech on the deficit, we must "reform our individual tax code so that it is fair and simple -- so that the amount of taxes you pay isn't determined by what kind of accountant you can afford. I believe reform should protect the middle class, promote economic growth, and...[reduce] tax expenditures so that there is enough savings to both lower rates and reduce the deficit."
Tax reform can help us get out of debt, but only if we keep the tax code progressive and apply some of the savings we get from closing loopholes to paying down debt. At the same time, we must look for savings in every part of our budget. But one look at the Republican budget shows that by leaving deficit-reducing tax reform out of the equation, and focusing solely on draconian spending cuts, we would come up short. Rather than ideologically insisting that we can get out of debt only by cutting spending, or only by raising revenue, we need some measure of both. All Americans, even the most privileged, must share the burden.
If we do share the burden fairly, the benefit won't just be a lighter burden of debt on our children. It will be an economy freer to invest, innovate, and grow -- free of an impenetrable tax code that is far worse than a nuisance.