Tax reform: Why a kinder, simpler tax code eludes Congress, so far
As Tax Day nears, Americans in the throes of preparing their returns may be dreaming of a simpler tax code. Here's why tax reform is such a tall order for Congress – and how two lawmakers are laying the groundwork for it now.
A popular president and a divided Congress endure first a divisive fight over immigration reform and then a swarm of lobbyists to pass an overhaul of the US tax code. Sound like a fantasy for President Obama's second term?Skip to next paragraph
Infographic Federal taxes by the numbers
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It's actually the story of 1986, when President Ronald Reagan, House Ways and Means Committee Chairman Dan Rostenkowski (D) of Illinois, and a GOP-led Senate succeeded in revamping the national tax structure for individuals and corporations.
A generation ago, Reagan's bipartisan accord pushed down tax rates by stripping out tax breaks tailored for narrow groups – helped along by a bump up in overall taxes paid by corporations.
Today, Mr. Obama and congressional leaders of both parties are talking as if it's 1986 (except for the part about sticking corporations with the tab). The conversation generally revolves around stripping out tax loopholes and reshaping what remains in a bid to reduce overall tax rates and simplify the entire system.
But as Americans rush to file their tax returns to Uncle Sam by the April 15 deadline, odds are they're likely to be stuck with the current unwieldy system for at least a few more years.
Don't tell that to the current House Ways and Means Chairman Dave Camp (R) of Michigan and Senate Finance Chairman Max Baucus (D) of Montana. They are determined to ensure that Congress will be ready to act should tax reform's moment arise – perhaps as part of a fiscal "grand bargain" later this year.
To tax reform advocates, the federal tax code is a shambling behemoth, its immense girth weighing down corporations and Jane and Joe Taxpayer alike. The code is more than 4 million words long and has been tweaked 4,680 times since 2001, or more than once a day, according to the Internal Revenue Service's National Taxpayer Advocate, whose job is to champion the poor schlubs who have to contend with the US tax system. Compliance takes more than 6 billion person-hours a year and costs $168 billion, the advocate's office reports.
Tax expenditures – the sober name for myriad loopholes, carve-outs, and incentives in the code – shield almost as much in revenue, at just over $1 trillion, as the $1.4 trillion collected each year.
Corporations, in particular, have a big reason to want to give up tax breaks in return for lower overall tax rates: The top corporate tax rate of 35 percent is the highest in the developed world (though many corporations pay less, thanks to tax shields).