For years there’s been a lot of talk – in politics, the media and corporate boardrooms – about the need for corporate tax reform to strengthen American economic competitiveness. And indeed, achieving this is essential for growth, job creation and competing in a global economy.
But there is another kind of tax reform that is publicly talked about far less, but is at least as important. Instead of boardrooms, the urgency of this national imperative is talked about around kitchen tables, at local diners, and over the backyard fence. It’s tax simplification reform for the average individual, family and small business in this country. And it must become a national imperative, especially if tax reform is to have practical meaning for the American people in their daily lives.
Simply put, our tax code is mind-numbingly complex. This complexity undermines important national economic policy objectives for our country, starting with better financial health for individuals and families. Tax simplification reform is essential to the national interest, so all Americans – individuals, families and small businesses – can truly understand their taxes, make better financial decisions, and ultimately help grow the nation’s economy.
At Intuit, we help tens of millions of individuals, families and small businesses take charge of their personal finances by helping them, and the professionals who serve them, prepare their income tax returns quickly, accurately and with greater ease through technology innovation. A vital part of this process is helping make sure taxpayers take all the credits and deductions they deserve. And indeed, over the decades, bipartisan policymakers have created many well-intended tax incentives for the American taxpayer to make sound financial decisions for education, retirement savings, childcare, and other positive purposes.
However, the complexity of today’s tax code means that too often these credits are confusing, poorly understood and under-utilized. Illustratively, there are now 11 different kinds of IRAs, 3 different ways to help with childcare, and 14 different education incentives – all with complex rules, various parts phasing in and out, and with widely differing and conflicting definitions of terms.
We will leave the debate about tax rates to others, but meaningful reform must address tax complexity not only because it undermines the achievement of family financial well-being, but because it represents one of the largest obstacles standing in the way of small business survival, growth and success.
There is also some conventional wisdom that holds that the less money you make, the simpler your tax return is. In fact, too often nothing could be further from the truth. For the working poor, claiming the Earned Income Tax Credit alone is extraordinarily complex, making eligibility extremely difficult to understand and compliance overly burdensome.
But there is another vital public interest that should drive the tax simplification agenda: combating tax fraud. Tax complexity has created very real vulnerabilities in our tax system. Organized criminals as well as individual fraudsters directly exploit these vulnerabilities to obtain improper payments.
Lastly, the complexity and associated burden that’s crept into our tax system also works at cross-purposes to compliance itself, leading some people to not file at all – whether out of fear, frustration, or lack of faith that they would end up paying only what they fairly owe (and not a penny more).
Voluntary Compliance, and the citizen engagement that goes with it, is a unique asset of the American system of government by the people. We must not abuse and undermine that asset with a tax system so complex that the people cannot comprehend it.
At Intuit we have participated for many years in the Free File Program, a public service initiative of the IRS and 22 State Departments of Revenue, where industry provides tax software and e-filing to millions of working poor, disadvantaged, underserved and middle income taxpayers, a unique program that is free to both the taxpayer and to the public treasury. Taken together, Free File online and VITA tax centers provide no-cost tax services to large numbers of taxpayers every year, together generating more than 6 million free returns annually for those in need.
But the power of technology innovation, and access to free services, are not enough by themselves to solve this challenge. Tax simplification is essential to both reform and strengthen our Voluntary Compliance tax system.
No one set out to create an incomprehensible tax code – it just happened, little by little, over a period of decades, through thousands of additions and changes. It will take a determined effort to tackle the resulting complexity, and make common sense tax simplification reform a reality. Now is the time to make it a national imperative.
This piece is part of Intuit’s series on “Empowering People’s Financial Lives.” For more, please see: Intuit’s Hub