As Americans sprinted to the mailbox or their computer to file their income taxes Tuesday, the leader of the nation’s largest grassroots taxpayers organization says major tax reform is necessary, is still doable and there’s no better time than now.
National Taxpayers Union President Pete Sepp says Republicans may well have the best political opportunity to tackle tax reform in this lifetime.
“We have an opportunity here that may not come in another several decades to do something more comprehensive with the tax system. And we can’t afford to pass it up, not because of the politics but because of many other situations, a perfect storm if you will, that has both opportunity and peril,” said Sepp.
He says American must realize that if major reforms don’t happen, Americans will be much more burdened by the system in the years to come.
“Standing still on tax reform means falling behind. It does not mean more of the status quo. It means something worse, and lawmakers need to remember that,” said Sepp.
How will it get worse?
“Otherwise, we’re going to get into a situation where we have a small cut in tax rates, the overall tax burden shifts only slightly, and the horrible burdens of having to comply with the system remain and actually worsen,” said Sepp.
In addition to wanting to see individual and business tax rates drop, Sepp says aggressively simplifying the system needs to be a huge priority, after Americans suffered through seven billion hours of compliance headaches this year, plus an addition billion hours on paperwork to comply with the tax code.
“For most families, that would mean increasing the standard deduction and personal exemption so that most households don’t really find it attractive or worthwhile to itemize all of those deductions. That cuts down the time and effort spent on the filing process. For businesses, it means simplifying the reporting of expenses,” said Sepp.
“Right now, all of the depreciation schedules and the clawbacks and the exceptions to the rule require tremendous amounts of calculation and record-keeping,” said Sepp.
Many experts believe the approach and scope of the tax reform effort was kneecapped by the failure of Congress to address health care reform in March. Sepp says there’s an argument to be made that repealing and replacing Obamacare would have made tax reform easier, and that the effort now is complicated by weak political momentum and the many Obamacare taxes that are still standing.
Nonetheless, Sepp believes a bill can still get done, with congressional committees crafting bills in the fall and sending a final version to President Trump early next year.
While Republicans do have the votes to pass reform without help from the Democrats, the legislation would be more effective if the Senate could find 60 votes to pass the eventual plan. With 60 votes or more, the tax reforms are made permanent unless Congress acts again in the future. Without 60 votes, the provisions would sunset after 10 years and return to the rates and policies in existence now.
Sepp thinks it may be possible to win over some Democrats.
“If Republicans try hard enough to involve Democrats in the process, especially on the Senate side, they might very well be surprised by the cooperation they’ll get. Ron Wyden, for example, the ranking minority on the Senate Finance Committee, has long supported revisions and simplifications to the tax system,” said Sepp.
“It won’t be easy. There’ll be a lot of arguments along the way, but engaging both parties in this effort will produce a stronger bill and a longer-lasting one,” said Sepp.
But how badly do lawmakers want to simplify the system? Politicians created the current maze and various interests benefit from it, so is there really enough will power to get this done? Sepp says it’s up to the people.
“What we need to do it harness the power of the grassroots to say to politicians, ‘Look, all these favors you have attempted to extend to us in the name of providing us constituents with relief is not worth the distortions to the economy, the long run costs to us as families and business owners. It’s got to stop,” said Sepp.
Given the current political climate, Sepp believes ideas like a flat tax or a national consumption, or Fair Tax will struggle to find their way into a final bill, but he reiterates this is the best chance to get this right in a long time.
“It’s going to be difficult to convince Congress to go whole hog on this effort, but that’s why groups like National Taxpayers Union exist, to make sure that we push the art of the possible to its maximum, so that we can get the best, strongest bill that will help the economy, that will makes taxes simpler and will stand the test of time,” said Sepp.
He says the simple rule of thumb ought to be for reform to benefit the greatest number of people possible.
“This isn’t just about cutting rates for large businesses that have operations overseas. It’s about reducing rates and complexity for small businesses and allowing the filing process to be more transparent and less burdensome for families as well,” said Sepp.