For years, pundits, elected officials and the business community have called for corporate tax reform to strengthen our economy. There is a strong consensus that better tax policies are needed to encourage economic growth, create more jobs and make the United States more competitive in the world.
We agree, but the discussion shouldn’t stop there. Across the nation, around kitchen tables, in local diners and over backyard fences, there’s a growing urgency for a more sweeping overhaul that simplifies the tax system and compliance for individuals, families and small business.
Virtually no one believes the bloated tax code is in good shape and doesn’t need to be slimmed down. Its complexity undermines important national economic policy objectives for our country, starting with better financial health for individuals and families.
Tax simplification should lead the tax reform agenda. It’s in our national interest. A system that helps all taxpayers and small businesses truly understand their taxes and make better financial decisions will ultimately help grow our economy. An engaged public will also make our system of voluntary tax compliance more successful and effective.
At Intuit, we help tens of millions of individuals, families and small businesses 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 throughout the year to help organize their company’s finances and grow while meeting their compliance obligations.
Amid the complexities of the tax code are a number of incentives to support health savings accounts, retirement, education, childcare, business depreciation and many other important goals. But for these incentives to work people need to understand them – something that has become increasingly more difficult as the tax code has grown increasingly more complex.
In the current code, taxpayers need to decipher 11 different kinds of IRAs, three distinct ways to help with childcare and 14 various education incentives – all with complex rules and multiple, conflicting definitions of terms as basic as what qualifies as a “dependent.”
Those examples highlight the many benefits behind tax simplification reform:
• Gains for everyone, at every income level: There is a common misperception that lower-income individuals and families have simpler tax returns. In fact, 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.
• 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 has created a system that criminals can exploit to abuse unsuspecting taxpayers to obtain fraudulent payments. It also leads to innocent taxpayer mistakes and causes many taxpayers to receive smaller tax refunds than they lawfully deserve. Some have actually proposed adding more complexity to tax credits like EITC as the solution. But making tax compliance more difficult would be a disservice to the very taxpayers this credit is intended to benefit. The fairer solution is to develop security measures against fraud and tax simplification to help reduce unintentional errors resulting in either underclaims or overclaims.
• 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 that they can accurately determine what they owe – choose not to file a tax return at all. A simpler tax code could eliminate some of the most common reasons given for why some people fail to file: confusion and lack of understanding.
• 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 of tax compliance which are exacerbated by 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. If we can’t agree on a more comprehensive approach to tax reform, let’s at least start by simplifying tax compliance for the average citizen. It would make a meaningful difference in the lives of every American.