There are two things we really like about the “Bipartisan Tax Fairness and Simplification Act of 2010,” introduced by Senators Ron Wyden (D-OR) and Judd Gregg (R-NH): the fairness and the simplification.
Some of the other elements in the bill, well, not so much.
Let’s start with the simplification. Having just passed our annual tax day of reckoning, lots of Americans no doubt would relish a little simplification.
The senators think their bill could slim down the standard 1040 form for most people to one page. That’s even better than the original income tax form from 1913, which CNSNews recently made available and can be downloaded here.
Wyden and Gregg say the IRS estimates that Americans spend nearly $194 billion and 6.6 billion hours on tax compliance. So a radical shift to tax simplification would create huge efficiencies for the economy—albeit at the expense of tax preparers.
The second cheer is based on the bill’s effort to simplify the tax code by reducing the number of income tax rates to three: 15 percent, 25 percent and 35 percent. And a flat corporate income tax rate of 24 percent.
They also exempt paying taxes on the first 35 percent of capital gains and eliminate most of the specialized tax breaks. Though they don’t eliminate the home mortgage deduction or the employee tax exclusion for employer-provided health insurance. That’s just a nod to political reality.
Wyden-Gregg doesn’t get a third cheer in part because they want to repeal the rule permitting companies to defer taxes on foreign income. Most foreign-based multinational companies, in other words competitors of US companies, pay income taxes only to the country where the business resides, which means they only pay taxes on the income once.
However, Washington requires U.S.-based companies to pay taxes on money that has already been taxed in a foreign country when the US company brings that money home to put to work here. So the company gets taxed twice on the same income, putting US companies at a competitive disadvantage. So many companies prudently leave their profits in the other countries to avoid double taxation, and Wyden-Gregg want to change that.
There are other tax reform proposals that we think might be better, like Rep. Paul Ryan’s (R-WI). But Wyden-Gregg has the benefit of being bipartisan and gets started down a long and much-needed road to tax reform.