Death to deductions: more candidates should be making a serious effort to close tax loopholes.

Author:Rugy, Veronique de
Position::Columns
 
FREE EXCERPT

As JEB BUSH vies for the spotlight in a crowded presidential primary field, the former Florida governor is hoping his tax plan will help set him apart. Bush's proposal would lower rates on individuals and corporations-standard conservative fare--while limiting or killing many popular deductions and exemptions, something Republicans like to talk about but few actually seem willing to do.

[ILLUSTRATION OMITTED]

Complying with tax laws shouldn't be complicated or punishing. But the process is anything but simple, and the price tag of that complexity can be enormous. According to a 2012 study from the Internal Revenue Service (IRS) and the Treasury Department, tided "Taxpayer Compliance Costs for Corporations and Partnerships: A New Look," corporations alone spent $104 billion complying with the tax code in 2012. That's a ton of money, especially considering that corporate tax revenues are only about $500 billion a year.

The cost to individuals may be even higher. According to a 2013 study by Jason Fichtner and Jacob Feldman of the Mercatus Center, Americans face nearly $1 trillion annually in hidden tax-compliance costs. Summarizing the study for U.S. News & World Report, they noted that "taxpayers spent more than six billion hours in 2011 complying with die tax code--that's enough to create an annual workforce of 3.4 million people. If that workforce was a city, it would be the third largest city in the United States. If that workforce was a company, it would employ more individuals than Walmart, IBM, and McDonalds, combined."

Why does tax compliance cost so much? The answer is largely that the Internal Revenue Code, which includes some 80,000 pages of regulations, is riddled with exclusions, exemptions, deductions, preferential rates, and credits.

The list includes the Child Tax Credit, the Earned Income Tax Credit, the Lifetime Learning Tax Credit, and the tax credit for "orphan" drug research (an incentive for pharmaceutical companies to develop treatments for very rare diseases). There is also an exemption for credit union income, an exclusion of interest on bonds for private nonprofit educational facilities, an exclusion for employer-provided transit passes, and a credit for residential solar panels and energy efficient appliances, among many others.

These all add up to more than $1 trillion in tax preferences, with two thirds benefiting individuals and the rest helping corporations. Navigating such a complex system generally requires expert...

To continue reading

REQUEST YOUR FREE TRIAL