Guest post by Senate Finance Committee Chairman Orrin Hatch
For nearly a decade, middle-class American families and individuals have dealt with a stagnant economy, sluggish wage growth, decreased economic opportunity, and a growing detachment from labor markets. American workers and low-to-moderate income families are suffering under the status quo economy inherited from the previous administration.
Current efforts in Congress to overhaul the nation’s broken tax system would help.
Despite numerous claims to the contrary, Republicans’ main objective in tax reform is to provide relief and greater opportunities for hardworking, middle-class taxpayers. That goal is rooted in virtually all of our general ideas.
For example, expanding the standard deduction for individual and married taxpayers would lower taxes for tens of millions of middle-class families and eliminate federal income tax liability entirely for many Americans with low-to-moderate incomes. Most proposals to increase and enhance the child tax credit would benefit middle- and lower-income families almost exclusively. And, reducing our tax code’s existing disincentives for savings and investment would greatly expand the wealth and improve the average quality of life for those in the middle class.
Clearly, tax reform, if it is done right, will expand the pocketbooks and improve the day-to-day lives of middle-class Americans. And, for most Republicans I know, this is the primary goal.
However, that’s not all. The potential benefits for the middle class go well beyond direct tax and monetary relief.
American taxpayers – both individuals and businesses – spend about six billion hours a year complying with tax filing requirements. All of that comes at a cost of around $233 billion a year – more than the GDP of Ireland or Portugal.
While those numbers are obscene, they’re really not surprising given the complexity of our tax code, which has grown exponentially in size and confusion over recent decades. In fact, it is about four million words long, or seven times the length of the novel War and Peace.
A simplified tax code – one that reduces the number of credits, deductions, exclusions, and the like, and includes a more streamlined rate structure – will save taxpayers’ time and money and allow resources to be directed more efficiently elsewhere.
Reforms to the business tax system will also greatly benefit the middle class.
Millions of small businesses throughout the country, including partnerships, sole proprietorships, and S Corporations – the so-called “pass-through” businesses – are currently taxed at individual income rates. Reducing tax rates on pass-through business income with protections against gaming of the tax system will simplify the system and allow more businesses on Main Street to start up, expand, create more jobs, and grow our economy.
In addition, the United States has the highest corporate tax rate in the industrialized world, which stifles growth and encourages businesses to move and keep operations – as well jobs and investments – offshore. That punitively high and globally uncompetitive corporate rate translates into stagnant wage growth and limited opportunities for middle-class workers who, according to many economists, tend to bear much of the brunt of the corporate tax. In addition to growing the economy and creating more jobs, modernizing our corporate tax system will have a positive impact on individuals and families in the middle class by making America an inviting, rather than punitive, place to do business.
Long story short, anyone who says that the middle class does not have a stake in tax reform is probably more concerned with scoring political points and bloating the size of the government even further than they are with providing relief to struggling individuals and families. Everyone in our country has an interest in seeing our economy grow to create more jobs, expand opportunity, and improve the quality of life here in America. That’s what Republicans seek in tax reform.
One thing we know for certain is that, when it comes to our tax system, the status quo is unacceptable, particularly for middle-class taxpayers who continue to struggle in today’s overburdened economy. Therefore, every member of Congress – Republicans and Democrats alike – should be engaged in the effort to fix our broken tax code.
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