Editorial: Focus tax reform on simplicity
Last-minute tax filers are scrambling this weekend to get their forms filled out and mailed ahead of the Tuesday deadline. Hopefully by this time next year, the task will be simpler and the tax burden less onerous.
President Donald Trump, having seen a rushed-together health care bill fail in Congress, is slowing the process of a major overhaul of the tax code. It surely won’t get done in his first 100 days, as promised on the campaign trail, and may not come until August, in time for Congress to take it up when it reconvenes for the fall session. That’s OK. Better to get this one shot at significant reform right than to get it right now.
What Trump and congressional Republicans hope to do with taxes could make a major difference to American families that are struggling with slow growing household incomes, and give a long-overdue jolt to the still sluggishly recovering economy. Democrats should get on board, too.
The proposals are solid. The president and congressional leaders must do the work necessary to assure their passage. Bipartisan support, where possible, would be ideal.
For individuals, the centerpiece of Trump’s plan calls for simplifying the tax code. That starts with reducing the number of brackets to three from seven —12 percent, 25 percent and a top bracket of 33 percent for single filers earning above $112,500 ($225,00 for couples.)
A major benefit of the Trump proposal is the elimination of the marriage penalty. Income thresholds for single taxpayers will be exactly half those of married joint filers.
Taxable income would be calculated much more favorably for filers. Standard deductions more than double ($15,000 for single and $30,000 for married.)
Deductions would expand for child care expenses, could be taken even if the taxpayer doesn’t itemize, and would cover up to four children instead of the current two.
Under additional proposals from congressional Republicans, most other deductions would go away with the lower tax brackets, except for mortgage interest and charitable contributions.
That will make filing a return, as well as ongoing record keeping, much less complex. Simplicity should encourage more accurate compliance, and boost tax revenues, while cutting costs for filers.
Congress must hold firm against the special interests that will lobby hard to keep their specific deductions enshrined in the tax code.
Additionally, the plan as outlined today would continue to encourage individuals to save for retirement, would kill the unfair estate tax and eliminate the punitive alternative minimum tax (AMT)
For business, the current 35 percent tax rate would drop to 20 percent, making the United States much more competitive with other nations that have already cut corporate taxes.
Perhaps just as important, it would establish a low tax rate on overseas earnings that are returned to the United States. An estimated $2 trillion in profits earned by U.S. corporations could be repatriated if a fair rate is established, leading to both an investment and tax revenue boom.
As with any tax reform, the goal should be to encourage savings, investment and job creation. The initial details of the Trump plan work favorably toward that mission.