Now Can We Talk about the Tax System?

On May 17, USA Today’s lead editorial stated the painfully obvious: the federal tax code is too complicated.

The statement was made in light of the most recent tax cut passed by Congress, a $70 billion relief package that primarily keeps the first Bush tax cuts in place. However, the editorial was, in fact, a bit of criticism leveled at Washington for making more changes to the code.

While we’re in favor of lower taxes, we agree with USA Today's basic point: The federal tax code is a mess and needs to be simplified.

As USA Today noted in a graphic that accompanied the editorial, there are 66,498 pages in the IRS tax code, up from 45,662 in 2001. That’s about, oh, 66,497 too many.

Can we talk?

The U.S. tax code has its roots in an early 20th century industrial economy. The code has been endlessly altered since then but never restructured, even as economies have changed significantly, both here and abroad.

Isn’t it finally time to ask what kind of tax system we need for a 21st century information economy?

We are no longer an island. The U.S. economy drives the world. And we need a tax system that recognizes that fact.

We need a code that:

• Promotes competition in the U.S. (i.e., it doesn’t favor specific companies or industries), while allowing U.S. companies to be competitive globally;
• Recognizes that capital moves where it is treated well and so implements policies that attract capital;
• Understands that trade is the key to economic growth and so encourages trade rather than trying to control it;
• Doesn’t penalize labor and savings, but instead encourages productivity and investment;
• Is short, easy-to-navigate and predictable from year to year (in other words, an efficient system that doesn’t require Americans to spend hours and hours trying to figure out what they owe); and,
• Knows that Medicare and Social Security are unsustainable and so encourages Americans to take responsibility for their own retirement.