In the second half of the year, President Trump and lawmakers in the House and Senate have committed to passing comprehensive, pro-growth tax reform.
President Trump has begun travelling the country to make the case that tax reform is a win for middle class families, while the administration and Congress have released a set of tax reform principles based around cutting taxes for all, simplifying the code for individuals and families and promoting a stronger economy through pro-growth policies.
Today, the tax code is almost 75,000 pages long and serves special interests that have distorted the code year after year to their benefit. While the well-connected thrive on this complexity, families across the country are not as fortunate.
More than 80 million families and individuals pay someone to file their taxes, according to IRS statistics. The Tax Foundation estimates that it takes roughly 8.9 million hours and $409 billion each year to comply with the tax code.
This complicates the ability of families to plan their finances, encourages fraudulent or improper payments and credits totaling billions of dollars, and empowers bureaucrats at the IRS, an agency that has become increasingly politicized, with numerous ways to unfairly target taxpayers.
President Trump and Republicans in Congress address these problems by reducing rates for families, repealing preferential deductions and credits that benefit the few, and expanding the child tax credit to help families truly in need.
At the centerpiece of individual tax reform, the plan proposes increasing the standard deduction – from $6,000 to $12,000 for an individual and from $12,000 to $24,000 for married couples. Not only will this reform increase take-home pay for families, it will also facilitate drastic simplification of the code because the majority of taxpayers will take this deduction instead of the more complex route of itemizing deductions.
In addition to this bold effort to simplify the code, the GOP tax plan also calls for growing the economy so that Americans across the country have higher wages and access to more jobs.
The economic recovery after 2009 is the weakest of the modern era and economic growth remains at an average of 2 percent over the past decade, far below the historical average of 3 percent. While the difference between 2 percent and 3 percent growth may sound minor, it is the difference between trillions of dollars of economic output (and tax revenues) every decade.
While the unemployment rate has stabilized in recent years, workforce participation remains low and it is estimated that families have lost an average of $8,600 in annual income, according to research by the Congressional Joint Economic Committee. Under current policies, the Congressional Budget Office predicts that two percent growth will continue into the next decade, depriving families of even more income and fewer job opportunities.
The Trump plan implements several reforms to turn around the economy so that businesses large and small can thrive. U.S. businesses face some of the highest rates in the developed world: corporations face rates of almost 40 percent after state taxes, while businesses organized as pass-through entities face tax rates approaching 50 percent after state taxes. By comparison, the average rate of businesses in the rest of the developed world is roughly 25 percent.
Leaders in Congress and the administration have promised to reduce the tax rate on businesses as low as possible, ideally 15 percent as Trump has proposed, or 20 percent as proposed by the House.
Tax writers have also committed to moving toward a system of territorial international taxation so that American businesses can compete and thrive against foreign competitors. To encourage investment in the economy, the GOP tax plan will move toward a system of immediate full business expensing, where businesses have a zero percent rate on the cost of any new investment.
The tax code is broken and there is a clear need for reform that simplifies and promotes growth. By sticking to the plan that has been outlined already, Trump and the Republican Congress can deliver a big win for middle class families across the country.