There have been so many changes to the tax code over the last decade -- more than one every day -- that the tax code is now 10 times the size of the Bible, but with none of the Good News.
I know -- it seems like an old joke now -- you've heard it a lot over the last few years. It still gets a good laugh at home in Michigan -- and when I travel around the country listening to hardworking taxpayers and job creators talk about the need to simplify and fix our broken, outdated tax code.
But what isn't funny is the impact Washington's constant tinkering with the tax code has had on our economy and on families.
We don't have to look too long before we see what the current tax code is doing to jobs and take home pay. American workers' wages have been steadily falling for the last five years.
This weak economy cannot even produce enough jobs for all the kids coming out of college today. In fact, there are a record number of young Americans who are moving back in with their parents instead of launching their own careers and starting families of their own.
The last time we reformed the tax code was 1986. That was 28 years ago -- and America, once the beacon for investment, hiring and strong wages, is now falling behind -- and it risks falling even further behind unless we take action.
The time to act is now. America cannot afford to wait.
I really saw, up-close, just what a mess Washington was making of the tax code back in December of 2010 when just a few of us from the Administration, the Senate and the House would huddle on a daily basis to figure out how we were going to handle expiring tax provisions. There was no rhyme or reason to it, and there was no justification for such short-term policymaking -- not when the real world makes business decisions on a long-term basis.
So, after that, I set the Committee to focus on comprehensive tax reform. We held over 30 hearings, including the first joint hearings with the Senate on tax policy since World War II. Sandy Levin and I formed 11 bipartisan working groups to tackle different tax policies. In that time, we also launched TaxReform.Gov, which produced more than 14,000 public comments on the need for and suggestions about how to do tax reform.
I'm proud to say we have done this in the most open,transparent and bipartisan basis -- getting input from all sides. Now, last August, the Democrats asked to see a bill to start analyzing. A lot of Republicans asked to see a bill to start analyzing. Well, that's what I am here to kick-off today.
The debate about needing to do tax reform is over. We have already lost a decade, and before we lose a generation, Washington must enact real, meaningful tax reform to get this economy back on track.
So, today, I am releasing what a simpler, fairer tax code that leads to a stronger economy actually looks like. And, more importantly, what that can mean for America's families and job creators.
My plan is guided by one simple principle: when it comes to the tax code, everyone should play by the same rules. Your tax rate should be determined by what's fair, not who you know in Washington.
At its core, this plan, the "Tax Reform Act of 2014," is a three-point plan to fix our broken tax code.
First, we make the tax code simpler and fairer so families can do their own taxes without the fear of being audited, or wondering if someone else who can afford high-priced accountant is getting a better deal.
We flatten the code by reducing rates and collapsing today's brackets into two brackets of 10 and 25 percent for virtually all taxable income, ensuring that over 99 percent of all taxpayers face maximum rates of 25 percent or less. The plan also reduces the corporate rate to 25 percent.
We make commonsense reforms like increasing the standard deduction and the child tax credit.
What that means is that 95 percent of the country no longer having to itemize. Now, they can get the lowest possible tax bill by just filing the basic 1040 -- no more itemizing, no more keeping track of all those receipts and no more filling out all those extra schedules, forms and worksheets.
Second, we make the tax code more effective and efficient by getting rid of special interest handouts and lower tax rates for individuals, families and businesses. This will allow small and large businesses alike to expand operations, hire new workers and increase benefits and take home pay.
You are going to hear a lot about one provision or another provision, or even another provision. But the truth is, people want a simpler, fairer and flatter code.
When we asked the American people, more than 80 percent said that the complexity of the code hurts the economy, and by a 2:1 margin they supported making changes (note, I said changing, not eliminating) to even some of the most sensitive policies (like the home mortgage deduction and charitable contributions) in order to get a better code.
But what they really want, and what this plan delivers, is a stronger economy -- they want to feel like they have the security and knowledge of knowing that they, their children and their children's children will still be able to reach for and achieve the American Dream. After streamlining the tax code:
The independent, non-partisan analysts say this plan could increase the size of our economy by $3.4 trillion -- that's equivalent to 20 percent of today's economy.
Based on the stronger economic growth, we will see nearly 2 million new jobs created, and
There will be up to $700 billion in additional federal revenues that can be used to lower taxes even further or reduce the debt.
What is the impact of that kind of growth on middle-class families?
Because we will have a healthier economy, wages will start to go back up. Based on calculations using the JCT data:
Middle-class families will have an extra $1,300 in their pocket at the end of the year. This comes from a combination of lower taxes and higher wages.
Third, we make the tax code more accountable to hardworking taxpayers. That means no more hidden provisions that only benefit a favored few, and no more tax increases to bailout Washington from its debt and deficit problems.
If we are going to close a loophole, the American people should get the benefit of a lower rate, instead of just handing that money over to Washington so it can spend more.
We closed a lot of loopholes and we got a lot of the junk out of the code. Our plan:
Repeals 228 sections of the tax code, and We cut the size of the income tax code by roughly 25 percent.
Tax reform needs to be about strengthening the economy and making the code simpler and fairer. Today, we have the opportunity to take the first steps forward so we can make our economy stronger, to create more jobs and to increase paychecks for families across the country.
That is the kind of tax code the American people need -- and deserve.
Now, before I open this up to questions, I want to draw you attention to the list of major provisions in the press release. Obviously, when you are talking about the entire tax code, there is a lot to go over. I won't go over all of them, but I do want to highlight a few of the items on that list. In addition to lowering rates the includes:
Simpler, Improved Taxation of Investment Income: We tax long-term capital gains and dividends as ordinary income, but exempt 40 percent of such income from tax -- resulting in a six percentage point decrease from the maximum rates individuals pay today while also achieving the lowest level of double taxation on investment income in modern history.
We completely repeal the AMT: both at the individual and corporate level.
Easier Education Benefits: We adopt recommendations stemming from the bipartisan education group led by Diane Black and Danny Davis to consolidate education tax benefits so, along with the additional money from stronger economic growth, families can more easily afford the cost of a college education.
We make permanent the R&D tax credit in order to ensure America is investing in innovation -- that is something Sandy Levin and I have long worked on together.
More Affordable Health Care: While the plan generally leaves ObamaCare policies untouched and for a later debate on health care, there are two main exceptions that have strong bipartisan support: (1) repeal of the medical device tax and (2) repeal of the medicine cabinet tax, which prohibits use of funds from tax-free accounts to purchase over-the-counter medication without first obtaining a prescription.
Infrastructure Investment: The plan dedicates $126.5 billion to the Highway Trust Fund (HTF) to fully fund highway and infrastructure investment through the HTF for eight years.
Simplification for Seniors: The plan adopts a proposal supported by AARP and ATR that requires the IRS to develop a simple tax return to be known as Form 1040SR, for individuals over the age of 65 who receive common kinds of retirement income like annuity and Social Security payments, interest, dividends and capital gains.
Charitable Giving: The plan expands opportunities to make tax-deductible contributions past the end of the tax year, makes permanent conservation easement incentives that Jim Gerlach and Mike Thompson have long work on together, simplifies exempt organization taxes and sets a floor instead of a cap to the amount of donations that can be deducted. The economic growth in this plan will increase charitable giving by $2.2 billion annually.