II: Tax Reform

Enact comprehensive tax reform.

Other Information:

Sharply reduce rates, broaden the base, simplify the tax code, and reduce the deficit by reducing the many “tax expenditures”—another name for spending through the tax code. Reform corporate taxes to make America more competitive, and cap revenue to avoid excessive taxation. Tax Reform -- America’s tax code is broken and must be reformed. In the quarter century since the last comprehensive tax reform, Washington has riddled the system with countless tax expenditures, which are simply spending by another name. These tax earmarks – amounting to $1.1 trillion a year of spending in the tax code – not only increase the deficit, but cause tax rates to be too high. Instead of promoting economic growth and competitiveness, our current code drives up health care costs and provides special treatment to special interests. The code presents individuals and businesses with perverse economic incentives instead of a level playing field. The current individual income tax system is hopelessly confusing and complicated. Many taxpayers are required to make multiple computations to see if they qualify for a number of benefits and penalties, and many dole out large sums of money to tax preparers. Meanwhile, other taxpayers underreport their income and taxes, hoping to avoid the audit lottery. In short, the Commission has concluded what most taxpayers already know – the current income tax is fundamentally unfair, far too complex, and long overdue for sweeping reform. The corporate income tax, meanwhile, hurts America’s ability to compete. On the one hand, statutory rates in the U.S. are significantly higher than the average for industrialized countries (even as revenue collection is low), and our method of taxing foreign income is outside the norm. The U.S. is one of the only industrialized countries with a hybrid system of taxing active foreign-source income. The current system puts U.S. corporations at a competitive disadvantage against their foreign competitors. A territorial tax system should be adopted to help put the U.S. system in line with other countries, leveling the playing field. Tax reform should lower tax rates, reduce the deficit, simplify the tax code, reduce the tax gap, and make America the best place to start a business and create jobs. Rather than tinker around the edges of the existing tax code, the Commission proposes fundamental and comprehensive tax reform that achieves these basic goals: Lower rates, broaden the base, and cut spending in the tax code. The current tax code is riddled with $1.1 trillion of tax expenditures: backdoor spending hidden in the tax code. Tax reform must reduce the size and number of these tax expenditures and lower marginal tax rates for individuals and corporations – thereby simplifying the code, improving fairness, reducing the tax gap, and spurring economic growth. Simplifying the code will dramatically reduce the cost and burden of tax preparation and compliance for individuals and corporations. Reduce the deficit. To escape our nation’s crushing debt and deficit problem, we must have shared sacrifice – and that means a portion of the savings from cutting tax expenditures must be dedicated to deficit reduction. At the same time, revenue cannot constantly increase as a share of the economy. Deficit reduction from tax reform will be companied by deficit reduction from spending cuts—which will come first. Under our plan, revenue reaches 21 percent of GDP by 2022 and is then capped at that level. Maintain or increase progressivity of the tax code. Though reducing the deficit will require shared sacrifice, those of us who are best off will need to contribute the most. Tax reform must continue to protect those who are most vulnerable, and eliminate tax loopholes favoring those who need help least. Make America the best place to start a business and create jobs. The current tax code saps the competitiveness of U.S. companies. Tax reform should make the United States the best place for starting and building businesses. Additionally, the tax code should help U.S.-based multinationals compete abroad in active foreign operations and in acquiring foreign businesses.

Objective(s):

2.1: Tax Reform

2.1.1: Tax Rates

2.1.2: Deficit Reduction

2.1.3: Simplification

2.2: Corporate Tax

2.2.1: Corporate Tax Rate

2.2.2: Business Tax Expenditures

2.2.3: Territorial System

2.3: Failsafe

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