Sec. 602. Policy statement on tax reform
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/bill/113/hconres/96/rh/section-602·A research copy — for the controlling text, always check the official state or federal source. Not legal advice.
The House finds the following: A world-class tax system should be simple, fair, and promote (rather than impede) economic growth. The United States tax code fails on all three counts – it is notoriously complex, patently unfair, and highly inefficient. The tax code’s complexity distorts decisions to work, save, and invest, which leads to slower economic growth, lower wages, and less job creation. Over the past decade alone, there have been more than 4,400 changes to the tax code, more than one per day.
Many of the major changes over the years have involved carving out special preferences, exclusions, or deductions for various activities or groups. These loopholes add up to more than $1 trillion per year and make the code unfair, inefficient, and highly complex. In addition, these tax preferences are disproportionately used by upper-income individuals. The large amount of tax preferences that pervade the code end up narrowing the tax base. A narrow tax base, in turn, requires much higher tax rates to raise a given amount of revenue.
It is estimated that American taxpayers end up spending $160 billion and roughly 6 billion hours a year complying with the tax code – a waste of time and resources that could be used in more productive activities. Standard economic theory shows that high marginal tax rates dampen the incentives to work, save, and invest, which reduces economic output and job creation. Lower economic output, in turn, mutes the intended revenue gain from higher marginal tax rates. Roughly half of United States active business income and half of private sector employment are derived from business entities (such as partnerships, S corporations, and sole proprietorships) that are taxed on a pass-through basis, meaning the income flows through to the tax returns of the individual owners and is taxed at the individual rate structure rather than at the corporate rate.
Small businesses, in particular, tend to choose this form for Federal tax purposes, and the top Federal rate on such small business income reaches 44.6 percent. For these reasons, sound economic policy requires lowering marginal rates on these pass-through entities. The United States corporate income tax rate (including Federal, State, and local taxes) sums to just over 39 percent, the highest rate in the industrialized world. Tax rates this high suppress wages and discourage investment and job creation, distort business activity, and put American businesses at a competitive disadvantage with foreign competitors.
By deterring potential investment, the United States corporate tax restrains economic growth and job creation. The United States tax rate differential with other countries also fosters a variety of complicated multinational corporate behaviors intended to avoid the tax, which have the effect of moving the tax base offshore, destroying American jobs, and decreasing corporate revenue. The worldwide structure of United States international taxation essentially taxes earnings of United States firms twice, putting them at a significant competitive disadvantage with competitors with more competitive international tax systems.
Reforming the United States tax code to a more competitive international system would boost the competitiveness of United States companies operating abroad and it would also greatly reduce tax avoidance. The tax code imposes costs on American workers through lower wages, on consumers in higher prices, and on investors in diminished returns. Revenues have averaged about 17.5 percent of the economy throughout modern American history. Revenues rise above this level under current law to 18.4 percent of the economy by the end of the 10-year budget window.
Attempting to raise revenue through tax increases to meet out-of-control spending would damage the economy. This resolution also rejects the idea of instituting a carbon tax in the United States, which some have offered as a new source of revenue. Such a plan would damage the economy, cost jobs, and raise prices on American consumers. Closing tax loopholes to fund spending does not constitute fundamental tax reform. The goal of tax reform should be to curb or eliminate loopholes and use those savings to lower tax rates across the board—not to fund more wasteful Government spending.
Tax reform should be revenue-neutral and should not be an excuse to raise taxes on the American people. Washington has a spending problem, not a revenue problem. It is the policy of this resolution that Congress should enact legislation that provides for a comprehensive reform of the United States tax code to promote economic growth, create American jobs, increase wages, and benefit American consumers, investors, and workers through revenue-neutral fundamental tax reform that— simplifies the tax code to make it fairer to American families and businesses and reduces the amount of time and resources necessary to comply with tax laws; substantially lowers tax rates for individuals, with a goal of achieving a top individual rate of 25 percent and consolidating the current seven individual income tax brackets into two brackets with a first bracket of 10 percent; repeals the Alternative Minimum Tax; reduces the corporate tax rate to 25 percent; and transitions the tax code to a more competitive system of international taxation.