Both the new Congress and the new administration have stated their deep commitment to enacting meaningful tax reform in 2017. We recognize this will not be easy, nor will it happen without significant compromises on all sides.
We also recognize that agreeing on a process of reform may be as challenging as the actual reform debates.
As our elected representatives begin this difficult but essential task that will also stimulate our economy, we strongly encourage them to make tax simplification a hallmark of any tax reform package.
Tax simplification is in everyone’s interest. It starts with empowering individuals and small businesses to more easily understand their taxes, allowing them to make better financial decisions. In addition, it will ultimately help grow our economy and make our system of voluntary tax compliance more successful, efficient and effective.
At Intuit, we help tens of millions of individuals and families take charge of their personal finances by helping them prepare and file their tax returns quickly, accurately and with greater ease. We also work with millions of small businesses and accountants throughout the year, helping them to organize business finances and meet their compliance obligations.
These tasks can be daunting for individuals and businesses alike. The tax code includes a number of incentives to support health savings accounts, retirement, education, childcare, business depreciation and many other important goals. But obtaining them can be difficult. For these incentives to work, people need to understand them – something that has become increasingly more difficult as the tax code has grown increasingly complex.
For example, the current code requires taxpayers to decipher 11 different kinds of IRAs, three distinct ways to help with childcare and 14 various education incentives. Each carries its own complex rules and multiple, conflicting definitions of terms –some as basic as what qualifies as a “dependent.” Tax simplification could achieve the following benefits:
- Gains for everyone, at every income level: Many mistakenly believe that lower-income individuals and families have simpler tax returns. All too often, nothing could be further from the truth. For these people, claiming the Earned Income Tax Credit alone is extraordinarily complex, making eligibility extremely difficult to understand and compliance overly burdensome. As a result, millions of EITC-eligible filers fail to claim the credit each year. Using plain language and simplifying the compliance with tax credits would help millions of taxpayers and reduce improper payments.
- Removes burdens for small business: Tax code complexity impedes small business creation, survival and growth. Tax simplification can remove those obstacles and spur entrepreneurship.
- Combats fraud: Tax complexity creates a system that criminals can exploit to abuse unsuspecting taxpayers to obtain fraudulent payments. It also leads to innocent taxpayer mistakes, causing many people to receive smaller tax refunds than they lawfully deserve. Any tax reform package should include principles-based solutions for developing security measures that will protect taxpayers from fraudulent activity.
- Improves tax compliance: Voluntary tax compliance is vitally important to our system of self-government. Yet some Americans – whether out of fear, frustration or lack of confidence –choose not to file a tax return at all. A simpler tax code could eliminate some of these common reasons for failing to file. Eliminating these hurdles will empower taxpayers to better take control of their financial lives.
- Increases accuracy and reduces burdens: Complexity causes inadvertent errors, shortchanging those who overpay and subjecting those who underpay to potential penalties and interest payments. Simplification can reduce those errors, while at the same time strengthening the system by minimizing improper payments. This reform would help eliminate mistakes across the spectrum, while reducing the costs and burdens resulting from unnecessary tax complexity.
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 throughout several administrations and with bipartisan support.
By including tax simplification as part of any tax reform effort, the new Congress and administration have an opportunity to make a meaningful difference in the lives of every taxpayer, small business and American citizen.