Opinion: Americans need federal tax simplification

By John Lee

As Election Day nears, Republican incumbents are touting federal tax cuts to defend their seats

In Rep. Carlos Curbelo’s (R-FL) words: “I think our biggest accomplishment was to pass historic tax reform legislation that has allowed an economic recovery to include more Americans.” He continues: “That doesn’t mean everyone is in perfect financial shape in this country but without question since we passed tax reform, [employers] are investing more in American workers, businesses are coming back and foreign competitors are not beating us.”

He’s right to be optimistic. Before congressional Republicans passed the Tax Cuts and Jobs Act, and President Trump signed it, our federal tax code had not been substantially updated for decades. Not since the Reagan years did our elected officials stand up for their constituents and address a complex tax system with burdensome rates.

That all changed last December, when a new wave of leadership in Washington, D.C. finally tackled a decades-old tax problem. And tackle it they did: The Tax Cuts and Jobs Act slashed the corporate tax rate from 35 percent to a more manageable 21 percent, hiking earnings and incentivizing those earners to invest.

At the same time, the new tax law has trimmed individual rates for small business owners and their employees, making it easier for job creators to grow their businesses and for working Americans to save money.

It’s not just a talking point. The numbers back it up. In recent months, hundreds of U.S. employers have used their tax savings to introduce pay raises, distribute bonuses, and revamp business operations.

And, no, that’s not an overstatement. To date, more than 725 employers have taken advantage of federal tax cuts for the greater good. This includes the likes of Apple, Chipotle, and Walmart, but also countless small businesses around the country—from mom-and-pop diners to neighborhood bookstores. These are the small businesses that make up Main Street America, and they are winning because of pro-business policies.

Fortunately, President Trump and the Republican Congress refuse to rest on their laurels. House Republicans recently passed a bill to extend individual and small-business tax cuts beyond 2025, in addition to increasing deductions and bolstering savings accounts. If the Senate decides to move on the bill, working Americans will be blessed with tax relief for decades to come.

Permanent tax relief is a step in the right direction, but there is more work to be done. Tax rates can be made lower, but the tax filing process can also be made simpler, which can benefit for all lawmakers, governments, companies, and employees.

In fact, nine in 10 Americans believe the tax code and calculation are too complex, meaning that the filing process costs them too much time and far too much money. There is a clear mandate—a bipartisan mandate—for simpler tax code and calculation.

So what specifically is the issue? Our existing tax code for tax calculation currently consists of multiple tax brackets, tax schedules, tax tables, withholding tables, and computations. And there are generally two tax systems within the broader tax calculation: Tax rate schedules with lengthy tax withholding tables (for tax estimations) and tax tables (for tax returns). We’re talking dozens of pages.

Confused yet? You’re not alone.

But there is a path forward. The best way to simplify the tax code for tax calculation is to adopt the often-ignored linear and gradual (LG) tax rate system. Among other reforms, the LG system would match, combine, and simplify the existing two systems with tax withholding tables (for tax estimations) and tax tables (for tax returns)—consolidating up to 33 pages into one simple system that’s less than half page long. This consolidation would save as much as $10 billion a year.

Republicans are right to praise tax cuts—because tax cuts are clearly working for the U.S. economy. But they ignore tax complexity at their own peril.

Working Americans demand simpler tax code and budget balance. The LG system would get us tax simplification.

John Lee is the founder of Tax Simple Center in Kansas City.