The U.S. tax code has become a maze of regulations that overwhelms taxpayers and consumes billions of hours annually. The National Taxpayers Union Foundation estimates Americans spend 6.5 billion hours on tax compliance, costing over $280 billion per year. Simplifying the code isn’t just about saving time—it’s about ensuring fairness and restoring trust in the system.
The Challenges of a Complex Tax Code
The tax code’s complexity disproportionately affects those with fewer resources. While the wealthy and corporations can afford accountants to minimize taxes, middle- and low-income taxpayers often struggle. Programs like the Earned Income Tax Credit (EITC), meant to help low-income individuals, are so complicated that millions miss out entirely. Simplification would level the playing field and reduce errors.
Taxable income calculations add further frustration. Determining how much Social Security is taxable involves multi-step formulas comparing adjusted gross income (AGI), nontaxable interest, and half of benefits against thresholds based on filing status. These rules confuse taxpayers and lead to errors. Simplifying such provisions would ease the burden.
How Simplification Can Be Achieved
- Consolidate Deductions and Credits
To simplify eligibility and reduce confusion, similar benefits, such as tuition expenses, student loan interest, and education credits, can be combined into one “Education Expense Deduction.” - Expand Pre-Filled Tax Returns
The IRS could pre-fill returns for taxpayers with straightforward situations, like W-2 earners, using existing records. Filing would then be as simple as reviewing and submitting. - Eliminate Corporate Income Taxes
Corporate taxes are passed on to consumers through higher prices, employees through lower wages, and shareholders through reduced returns. Eliminating them would remove this hidden tax, address the double taxation problem on corporate earnings, and encourage reinvestment in growth and innovation, keeping business investment strong. - Eliminate Special Capital Gains Tax Rates
Replace reduced rates for long-term gains with an inflation-adjusted basis for long-term assets. For example, a $10,000 stock bought 20 years ago that has doubled with inflation would have an adjusted basis of $20,000, taxing only real gains. This would ensure fairness while simplifying the system. - Automate Tax Benefits
Automatically applying credits like the Child Tax Credit using IRS records would reduce errors and ensure eligible taxpayers don’t miss out.
A Path Forward
The tax code has grown increasingly complex over time, piling on burdens for taxpayers. The last significant simplification came with the Tax Reform Act of 1986. Now is the time for another overhaul. By consolidating deductions, automating benefits, eliminating corporate taxes, and reforming capital gains taxation, we can save millions of hours and restore simplicity to the system.
