Tax Reform Bills Could Save Taxpayers $168 Billion

Senate Finance Committee Chairman Max Baucus (D-Mt.) and Ranking Member Orrin Hatch (R-Utah) recently published a set of 10 Tax Reform Options Papers, aimed at starting a discussion about tax reform. The senators’ “blank-slate” approach would rewrite the tax code to close loopholes and decrease complexity. The option papers, which are available on the Finance Committee website, present the problems with the major areas of the current tax code and provide a variety of solutions without partisan bias.

Specifically, the papers discuss: the simplification of the tax system, business innovation, families and education, infrastructure and energy, economic and community development, international taxation, economic security, types of income and business entities, tax-exempt organizations and charitable giving, and non-income tax issues. Baucus and Hatch have asked each member to review the papers and report back to the committee with provisions they feel must be included. After this, a bill will be drafted and the legislative process will proceed.

The United States has a great need for tax reform. With the code being thousands of pages long and inordinately complex, most taxpayers hire professionals or use software to file their taxes, creating an inefficient system that ultimately costs taxpayers $168 billion or 15% of total income tax receipts to comply. Furthermore, many provisions overlap with each other and federal spending programs, creating even greater inefficiencies.

The tax code was last reformed in 1986 during the Reagan administration. Since then, loopholes and new provisions, such as the 2000 Bush tax cuts, have been created and exploited to accommodate special interests.

The recent IRS targeting scandal has brought some light to the shadows of the American tax system. Along with some public awareness and media attention, current angst could be channeled into a meaningful political discussion of reform. However, for Congress to seriously consider change a massive public demand must put the subject on the top of the policy agenda and the need for reform must extend beyond partisan politics. President Obama, legislators, and special interests must work together to develop cohesive legislation that is equitable to all parties. The challenge set forth will not be easy. In fact, a complete bill should not be expected in the near future. The option papers present a small but important first step in a long legislative battle to come. With willingness to compromise, though, sweeping reform will not just be a projection, but a reality.

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Hilary Gelfond

As sophomore Policy Analysis Major at Cornell University, Hilary studies current public issues regarding economics and social insurance and formulates possible policy solutions in accordance with economic, government and sociological theory. The author works as Policy Analyst at the Center for Economic Policy and Development in Cornell's chapter of the Roosevelt Institute think tank, as well as serving as a Teaching Assistant for an introductory policy analysis course. Hilary spent her summer working as an intern in the office of US Senator Barbara Mikulski where she focused on economic and social insurance issues. In the future, Hilary plans to work in a law firm or think tank.

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