Reform Current Tax Regime

Americans deserve a simpler, fairer, more pro-growth tax system

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The need for tax reform is urgent. One of the greatest obstacles to increased economic growth and more expensive living standards is an impossibly complex and ever-changing tax code. While there are many obvious problems with the current tax system, there are two paramount issues that must be addressed. The first major problem with the system is the generally high marginal rates of taxation on income. The other, perhaps more significant dilemma is the almost impossible task of compliance with all the rules and regulations.

The current tax code is comprised of more than 10,000 pages of laws and regulations that inevitably weaken the economy’s strength by punishing work, investment, risk-taking and entrepreneurship. The tax code is unfair to small businesses, biased against savings and investment, and impossibly complex. Small businesses simply cannot cope with the ever-changing nature of the tax code. In addition, the current tax system impedes small-business growth by discouraging long-term investment, instituting a complex and resource draining estate tax, and by hindering job creation with an over-reliance on payroll taxes. A tax system dedicated to investment, savings and small-business growth must be put in its place.

In his State of the Union address, President Obama called on Congress to reform individual and corporate taxes. He reiterated the message at a press conference Feb. 15, by saying the corporate tax rate stands at 35 percent but is effectively much lower for many companies due to the number of tax expenditures in the Code that narrow the tax base. Leadership in both Houses have stated that comprehensive tax reform is a major policy objective for the 112th Congress, and Democrats and Republicans already have started holding hearings and drafting legislation.

In February 2010, Obama issued an executive order convening a panel of experts to study the current federal tax code and propose ways to balance the budget by 2015. The National Commission on Fiscal Responsibility and Reform proposal would reduce the deficit by $3.885 trillion between 2012 and 2020 through a mix of spending cuts, increased revenues from a simplified tax system with fewer tax breaks, and lower debt service payments. Specifically, it would lower rates for individuals and corporations while broadening the tax base by repealing tax expenditures. The plan failed to garner the necessary 14 votes from the panel that would have sent it on to Congress.

Broad reform of the entire tax code is necessary, not just for corporate entities. The overwhelming majority of small businesses are pass-through entities and therefore pay business taxes through their individual income tax. Allowing the smallest businesses to pay a much higher tax on their business income than a multinational, multi-billion corporations undercuts any semblance of fairness.

As both Congress and the American people debate what tax system should replace the current system, NSBA believes it is imperative that the U.S. moves toward a simpler, fairer tax system that incorporates the following six principles:
• Designed to tax only once
• Stable and predictable
• Visible to the taxpayer
• Simple in its administration and compliance
• Use commonly understood finance/accounting concepts
• Fair in its treatment of all citizens
 
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