A U.S. president once said, “The federal government’s most useful role is not to rush into a program of excessive increases in public expenditures, but to expand the incentives and opportunities for private expenditures.” He called for an “across-the-board, top-to-bottom cut in personal and corporate income taxes,” as well as a familiar promise that the “new tax bill should improve both the equity and the simplicity of our present tax system.”
The president who uttered those words was not Richard Nixon, Gerald Ford, Ronald Reagan or George Bush. It was John KennedyJohn Neely KennedyLouisiana Democrat running for US Senate smokes marijuana in campaign ad MORE in a speech to the Economic Club of New York on Dec. 14, 1962. The same principles behind Kennedy’s speech are the bedrock of the Republican tax reform proposal that was released last month.
The size, scope, and power of the IRS will be dramatically reduced with tax cuts and a simplified tax code. In 2016, 94 percent of taxpayers paid someone else or used software to prepare their tax forms. Taxpayers currently spend 8.9 billion hours annually complying with the tax code, which costs the economy more than $234 billion per year. The instructions for the typical 1040 tax form have grown from just two pages in 1935 to 241 pages today.
Tax reform would allow the clear majority of Americans to fill out their taxes on a single sheet of paper, which could be processed quickly and efficiently. The need to keep receipts and superfluous documents would end, as would the inordinate (yet rational) fear of the IRS, whose fiscal 2017 budget for its 78,000 employees was $11.4 billion. Of that, $4.7 billion went toward enforcement, including auditing, and $2.4 billion was used to process tax returns. Those figures would be far lower under a simplified tax system.
While the savings opportunities are not as large as they are at the IRS, some of the responsibilities of the Treasury Department office of tax policy, the Treasury Department inspector general for tax administration, the Justice Department tax division, and U.S. attorneys offices could be reduced, eliminated or reallocated. For example, if the federal estate tax is eliminated, the Treasury Department office of tax policy would not have to issue reports on that area of taxation. The same result could occur for tax deductions that are eliminated in a tax reform bill.
A fairer and simpler tax code would likely lead to more compliance with the law, along with fewer incentives and opportunities to file false returns. That would help reduce the scope of work for the Treasury Department inspector general for tax administration, which is responsible for identifying opportunities to improve tax compliance, among other duties.
Greater compliance could also alleviate the amount of time that the Justice Department tax division, which is responsible for civil litigation, and U.S. attorneys offices, which are responsible for criminal prosecution related to the tax laws, spend on such cases. Resources would be freed up to investigate and prosecute more cases of stolen identity refund fraud, which has impacted hundreds of thousands of taxpayers and cost the government tens of billions of dollars.
The promise of equity would also be achieved through tax reform. The current 70,000-page tax code is a boon for the wealthy and well connected, who can afford to pay top dollar to game its complex rules and regulations. Eliminating the mountain of special interest loopholes, while also streamlining the entire process, will close the gap between the special interests and middle class Americans.
Tax cuts will give the United States the opportunity to experience significant economic growth, eliminate waste in the federal government and reduce the national debt, all at the same time.
Thomas A. Schatz is president of Citizens Against Government Waste.