TODAY IS tax day. It is one of the most dreaded days in the calendar year for many Americans. Not only does it mean writing a check to the federal government, but it involves hours of frustration spent poring over old receipts, calculating deductions and exemptions, and filling out complicated tax forms.
As former U.S. Treasury Secretary William Simon once observed: "The nation ought to have a tax system that looks like someone designed it on purpose." Today, our nation is saddled with the opposite. Our tax code -- 3.7 million words and growing -- is a patchwork of loopholes and exemptions. Simply put, our tax laws are out of date, unfair and overly burdensome for the American taxpayer. Compounding this increasing complexity is the concern that the tax increases scheduled to go into effect next year will have a significant and harmful effect on our economy.
After facing one of the most serious economic downturns since the Great Depression, we have moved into a period of recovery. Respected economists have noted that if these scheduled tax increases are not addressed, Americans will likely suffer from renewed economic sluggishness and higher unemployment than would otherwise occur.
If Congress fails to act this year, every American who pays taxes will see a significant increase in his or her tax burden. The child tax credit will be cut in half; the marriage penalty will be reinstated; and more than 13 million low-income Americans will be forced to pay taxes for the first time in nearly a decade. Put another way, $1,900 would be added to the tax bill of a family of four with an annual income of $60,000, and more than 43 million families with children would have to pay an average tax increase of $2,323.
How do we improve the U.S. tax code? Along with Sen. Ron Wyden, D-Ore., I have proposed the Bipartisan Tax Fairness and Simplification Act of 2010 which would put in place common-sense tax policy for the 21st century. It creates a tax system that is fair, simpler and promotes growth.
One way our plan reduces the stress, cost and the estimated 7.6 billion hours spent on tax preparation and compliance is to use a straightforward and shortened one-page IRS Form 1040 for federal income taxes. If the taxpayer chooses, our plan would allow the IRS to prepare a tax return for you, the taxpayer, to review, edit and sign. With an estimated $194 billion spent on tax preparation each year, these measures would mean a significant saving for our economy.
To simplify tax calculations for working families, we have cut the number of tax brackets in half. There would be three rates of 15 percent, 25 percent and 35 percent. Providing further relief to individuals and families, our proposal would eliminate the alternative minimum tax, triple the standard deduction, create new opportunities for tax-free saving and eliminate restrictions on personal exemptions and itemized deductions.
Taxpayers, especially seniors -- many of whom live on pensions and other investments -- would pay taxes on only 65 percent of their dividend and long-term capital gains income, thus reducing their rate of tax.
Currently, U.S. corporations pay the second-highest tax rate in the industrialized world. Our plan would replace the existing six corporate rates and eight different brackets with a single flat rate of 24 percent. This will cut the U.S.
corporate tax rate by nearly one-third and, for the first time in nearly a decade, give American corporations a competitive tax advantage over foreign manufacturing competitors including Canada, Germany and France.
A more competitive America translates into more jobs and higher incomes for America's workers. Earlier this week, the Heritage Foundation's Center for Data Analysis released its preliminary estimate of how Wyden-Gregg could benefit the U.S. economy. It found that Wyden-Gregg would boost the economy by nearly $160 billion and create two million new jobs this year -- and more than three million new jobs by 2013.
In a period of economic downturn, and in the face of skyrocketing debt and deficits, any tax reform we undertake must be fiscally responsible.
By eliminating many of the special interest tax breaks littering the current code, we are better able to balance tax relief with sound financing of the government.
This legislation represents a timely solution to a problem we can no longer afford to ignore. We must address the flaws in our current system.
Wyden-Gregg is a bipartisan approach that will refocus our tax system, providing economic stability, promoting job creation and increasing opportunity for all Americans through a simpler, fairer and more pro-growth tax law.
Sen. Judd Gregg, a Republican, represents New Hampshire in the U.S. Senate.