Fundamental reform of the US tax code is critical for the future of the US and within reach if President Obama and Congress have the will to push it forward. The US tax code currently is thousands of pages of rules with so many loopholes that it is hard for anyone to really understand it. The tax industry generates billion of dollars every year from people trying to maximize their returns and NOT pay taxes. The US government should be finding ways to simplify the tax code. This will encourage people to spend less time trying to avoid paying taxes. My core principles for tax reform, that I share with many members of Congress, are now getting support from both Republicans and Democrats.
Here are the main principles.
First, reduce overall tax rates. This will encourage investment and growth in the US. Lower rates allow people to take home more income and invest their take home pay as they see fit.
Secondly, offset the reduced tax revenues from lower rates. In order to do this, Congress needs to reduce itemized deductions. Simplification of the tax code is the key to generating more revenues, as people will not spend hours searching for deductions and loopholes, but simply pay their taxes. This concept will be extremely tough for higher tax states in the Northeast and California. Residents of these states offset their large state and property tax bills on their federal returns. Doing this offers a huge tax benefit to them and reduces their overall federal tax bill. Although people living in these states will lose the deductions for their state and property taxes, I believe they will benefit from the lower marginal tax rates which will offset a good portion of the increased tax liability. Moreover, it will ensure that the Federal government does not continue to subsidize states that overtax their residents. Higher taxes in California or New York take money directly out of the federal government. We as a nation eventually pay for that cost through higher taxes or unfunded governmental debt.
Lastly, we should eliminate the Alternative Minimum Tax (AMT). This tax was originally supposed to affect a small number of millionaires, but now affects tens of millions of Americans into its complex web. It is archaic and overly complicated.
If these concepts are implemented, I believe, the US will be catapulted into another unprecedented growth cycle with revenues coming into the government at all time highs.