U.S. Tax System an Obstacle to Economic Growth

By any measure, the U.S. tax code is broken.

Statistics compiled by the nonpartisan Tax Foundation read like an indictment of a tax system that is too long, too complicated and deeply flawed. Americans spend more than 7 billion hours each year attempting to comply with a bewildering tax code that, at 3.8 million words, is longer than the King James Bible (783,137 words) and the Constitution (4,447 words). Of 143 million tax returns filed, only 85 million actually paid income taxes -- with 26 million filers receiving $56 billion in refunds despite having paid no taxes. Overall, Americans spend more each year on federal, state and local taxes than we spend on food, clothing, and housing -- by a margin of $4.04 trillion to $3.89 trillion.

The Tax Foundation uses the term "Tax Freedom Day" to recognize the date on which American workers have earned enough to pay their tax obligations and can begin keeping their earnings to support themselves and their families. This year's Tax Freedom Day fell on April 17 nationwide and April 8 in Oklahoma. Thus, the average American will work 107 days this year just to support the government. By comparison, Tax Freedom Day in 1900 occurred on January 22. Before the explosive increase in the size of government and level of debt, Americans in the early 20th century enjoyed a tax rate of 5.9 percent.

House Republicans have put forward several proposals to reform the tax system. The budget plan we passed in March would reduce the tax burden and simplify the system by creating just two tax brackets of 10 and 25 percent. Our reforms would lower the corporate tax rate from 39.2 percent -- the highest rate in the industrialized world -- to 25 percent. Just after Tax Day this year, we passed the Small Business Tax Cut Act, which will help create an estimated 100,000 new jobs per year by providing a 20 percent tax cut for every business that employs fewer than 500 people. Small businesses represent 99.7 percent of all private sector employers and generate 65 percent of new jobs. It's just common sense to let these proven job creators keep more of their profits to invest in growth.

President Obama's proposals, on the other hand, seem to be based on the assumption that Americans need to pay more taxes. If the president succeeds in his stated goal of rolling back the tax cuts in place since 2003, Americans could face a $494 billion tax increase next January. That's $3,800 in new taxes for the average American family in 2013. His so-called Buffett Rule to raise taxes on high earners may poll well, but it does nothing to create jobs or reduce the deficit. If anything, it actually adds another layer of complexity to the tax system while generating only enough new revenue to cover less than two days' worth of government spending.

Tax Day serves as a useful annual reminder that our tax system is riddled with absurdities that create inefficiency and unfairness. However, political gimmicks and tax increases are no substitute for real reform.