Reforming the Us Tax System may be daunting

After the failure of repealing Obamacare, or as it is officially known, Affordable Care Act, Washington Republicans have now targeted tax reform. Both Republicans and some Democrats agree that there is a need to plug the loopholes and cut the tax rates for both individual income tax and corporate tax rates. Congress has been considering the reform of the tax system since 1986. The move failed that time too.

Proof (or not) of too much tax

The US has too complex a tax system when compared to comparable rich countries. Carve-outs in tax code have only multiplied since the last tax reform, only showing the way Congress does its business. The increase in federal tax code, with the latter having tripled in recent 30 years, could frequently be shown as proof that the United States is subjected to excessive taxation.

At one time, the passage of any bill was made possible by pouring federal money for the congressmen's pet projects in their districts, the lubricant being used now are the tax breaks. The size mirrors all the special tax breaks. When it comes to individuals, however, the exemptions transform a tax system which can be described as redistributive to something which is not. The same conclusion can be applied to commercial taxes as well. Even by global stands, the 39 percent top marginal rate followed by the US is too much.

Real taxes

Even though investment could be slowed down by high top rate, it does not mirror tax bills which American companies actually end up paying. A study conducted by Government Accountability Office, a non-partisan outfit, almost 75 percent of the companies paid zero federal tax from 2006 to 2012. Huge corporates which made profits paid federal taxes amounting to only 14 percent of net income during the 2008 to 2012 period. The Government Accountability Office pointed out that this 14 percent went up to 22 percent once local and state taxes were included.

Republicans have the tendency to consider the headline rates for both corporate and individual taxes. They agree that these rates must be decreased. This has given a feeling of optimism to the caucus that reforming the tax system will have better chances of success compared to Obamacare. However, it is to be noted that those rates are not completely what they seem to be. To push them down, it would need a mix of closing exemptions, borrowing and increasing deficit.

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