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1 Robert J. Carroll, Tax: Fundamentals in Advance of Reform: Testimony of Robert J. Carroll before the Senate Committee on Finance 1 (2008)

handle is hein.taxfoundation/taxfaaqd0001 and id is 1 raw text is: Testimony of Robert J. Carroll Vice President for Economic Policy, Tax Foundation Executive-in-Residence, School of Public Affairs, American University Tax: Fundamentals in Advance of Reform (Testimony of Robert J. Carroll Before the Senate Committee on Finance), United States Senate April 15, 2008 Chairman Baucus, Senator Grassley, Distinguished Members of the Committee. Thank you for the opportunity to appear before you today to discuss tax reform. The Tax Foundation, now in its 71st year, is a non-profit, non-partisan research group whose mission is to educate taxpayers about sound tax policy. The economic sluggishness we read about each day has prompted many suggestions of short-term economic fixes, but tax reform remains one of the most important long-term economic challenges. Tax reform offers significant opportunities to promote a growing economy by removing or minimizing the many ways in which our tax system interferes with economic decision making and create in its place a tax system where household and business decisions are based more on economic merit than on an array of complex and difficult to understand tax rules. Today, the U.S. tax system remains a complicated web of tax rules that impose substantial compliance and economic costs on the economy. The number of special tax provisions with complex phase-ins and phase-outs continues to grow. These provisions may be well intentioned, but they increase compliance burdens, narrow the tax base and require higher tax rates to raise a given amount of revenue. Moreover, despite becoming a poster child for tax reform, the alternative minimum tax (AMT) remains a significant feature of the income tax. While the Congress continues to limit the AMT's grasp with temporary one-year patches, the growth in the size and scope of this parallel tax system will make these temporary fixes increasingly difficult from a budgetary perspective. The compliance costs of the income tax system are substantial. According to the Internal Revenue Service (IRS), the compliance burden of the income tax system is about $140 billion annually. Moreover, the complexity has driven most taxpayers to use paid preparers or tax software: Today roughly only one of every eight taxpayers prepares their own tax returns. In addition to the compliance burden, the tax system also interferes with household and business decisions in economically important ways. For households, for example, the income tax affects the decisions of how much to work, save, invest, give to charity, and borrow when purchasing a home. For businesses, it affects their decisions about how much to invest, where to invest internationally, the source of funds for investment (e.g., debt, equity), whether to invest in the corporate or non-corporate form, and how to distribute profits. A more tax neutral environment 1

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