Tax reform is a leading issue that will be hotly discussed in the next few years. America’s resurgence affords opportunities to make important adjustments to government functioning and spending that can improve opportunities for long-term growth. Now is not the time to fall into a trap of complacency only because the economic position of the U.S. is improving. Reforming the tax system helps both businesses and citizens understand their tax situations and create more trust with government.
Depending on what perspective a person comes from will determine whether or not they are an advocate of tax reform. Many times these differences are created based upon demographics. For example, a person making $40K a year will have a different perception than someone making $500K a year. Simplification offers an opportunity to put them both on the same playing field.
Corporations and individuals will also have different perspectives. Corporations will desire to lower their liabilities which are good for business and society while individuals may want to lower their own tax expenditures allowing them to spend the savings and further economic growth. Both positions have merit and would likely be served by tax reform.
The Average American Perspective
The tax code is complex and dissatisfaction with how government is spending American tax payer money has always been a contentious issue. Tax reform affords an opportunity to be more transparent with the average American who may be wondering what happens to all that money and whether or not the tax burden is unfairly falling on their shoulders.
People are naturally distrustful of things they don’t understand. Almost no one understands the tax system and this includes accountants as well. Taking individual tax information to three different accountants results in three different answers. A simplified system will allow individuals to save their money and file on their own without the need of expert help.
The Business Perspective
Businesses also get bogged down by complex corporate tax rates. Taxes are a complex and hotly political issue but ultimately create a risk for business. Companies that want to invest in the U.S. will need to hire expensive attorneys and analysts to determine their tax liability on projected projects. This creates a significant risk for businesses that would be able to make better projections with a simpler tax code.
A complex tax code also encourages political mischief and crony capitalism. Complex systems are partly the result of politics. Interested stakeholders put pressure on politicians to create tax breaks, incentives, and loop holes that help a few powerful entities over the needs of others; the more complex the system, the more opportunity for political hanky panky. Keeping the tax system simple also keeps it transparent.
The tax structure is likely to become a big issue over the next few years as both political parties try and make some sense out of government spending and revenue generation. Tax reform is one of the issues that can lead to some level of agreement even though each party has their own particular take on the subject. At present the discussion is only just starting and a viable plan should be developed that can move through the legislative process.