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New PPI Paper: Simplification First Principle of Tax Reform

Simplify, Simplify, Simplify: The First Principle of Tax ReformWashington, D.C.  – A new paper from the Progressive Policy Institute outlines how Congress and the White House should make tax simplification a top priority as reform is considered over the next year. The paper, authored by Paul Weinstein, Jr., a former Clinton Administration official and advisor to the Bowles-Simpson Moment of Truth project, explains why a simpler and more progressive tax code will steer investment into job-creating activity, enable U.S. workers and companies to compete on an even footing in world markets, and raise enough revenue to finance the government while ensuring fairness to taxpayers.

“If our government leaders are serious about helping Americans and creating a strong and stable economy, fixing our broken tax system should be their top priority over the next year,” said Will Marshall, President and Founder of the Progressive Policy Institute. “Our current system is too complex and filled with too many loopholes that benefits only special interests. We need to create a transparent and user-friendly system that promotes prosperity for all Americans, delivering common sense tax reform that will really matter to the average taxpayer.”

Weinstein begins by defining what simplification is and arguing against plans such as a flat tax, which would destroy the progressive tax system. Additionally, Weinstein warns against political gimmicks like the IRS pre-filling taxpayers’ returns (also known as “return free filing”), which he identifies as an “inherent conflict of interest” that would further disengage Americans from their tax compliance obligations while decreasing financial literacy.

Weinstein writes that if Congress and the Administration are serious about simplifying the tax code for the vast majority of taxpayers, tax reform must achieve the following goals:

  1. Promote economic efficiency and growth. Pro-growth tax reform will help speed economic recovery, bring unemployment down, and shrink the national debt.
  2. Reduce the number of tax incentives to lower rates and rebuild the nation’s revenue base. Each tax loophole is fiercely guarded by the special interests who benefit from it. Closing tax breaks en masse will not be easy, but it is essential both to lower tax rates for middle class families today, and to whittle down public debts that imply crippling tax burdens on tomorrow's taxpayers—aka our children.
  3. Maintain progressivity. Most tax incentives in the code today make it less progressive, not more. Eliminating many tax incentives and using the savings for lower rates, can, in conjunction with maintaining (and maybe even expanding) the Earned Income Tax Credit, maintain or improve progressivity in the tax code.
  4. Reduce errors and avoidance. Tax law complexity often leads to perverse results. Hiring more IRS enforcement personnel, increasing the amount of third party reporting, and radically simplifying the tax code will help close the tax gap and improve voluntary compliance. Common sense simplification of the code – especially in everyday provisions that impact the average American – can make a real difference, and make tax reform real for most taxpayers.
  5. Better align state and federal rules. While federal tax reform is probably a heavy enough lift for this Congress, simplification will never be maximized unless federal and state governments can come together to better align their tax systems so as to reduce paperwork, streamline the filing process, and create less opportunity for tax arbitrage.

The full paper, Simplify, Simplify, Simplify: The First Principle of Tax Reform, can be found at: http://www.progressivepolicy.org/2013/07/simplify-simplify-simplify-the-first-principle-of-tax-reform