The Need for Tax Reform
THE NEED FOR TAX REFORM -- (House of Representatives - April 13, 2005)
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Mr. HOYER. Mr. Speaker, I rise to speak about tax reform and tax simplification, but one of our newest Members has had the opportunity to have the floor for the previous hour and talk about Social Security. I know that he is very worried about Social Security and, as a result, has been addressing that. But I am constrained to say that he talked about personal accounts with reference to Social Security. Of course, what he did not say is that Social Security has nothing to do with the solvency of Social Security. He talked about a moral responsibility. The President of the United States and his party indicated they were not going to spend any money of Social Security. In fact, in the last 4 years, they have spent and continue to spend every nickel of Social Security. I am sure my young friend will acknowledge that point at some point in time, but that is not the subject tonight of our Special Order.
Mr. Speaker, the one thing that millions of Americans will not be saying at the end of this week is, TGIF, thank goodness it is Friday. Friday is the day, of course, April 15, the annual deadline for filing Federal income tax returns, a duty of citizenship that provokes anxiety, confusion, and, yes, even anger in many taxpayers every year. Without question, the Internal Revenue Code has become a maze of complexity that confounds millions of Americans, including, I think, all of us who will speak. It treats many taxpayers unfairly; and it creates an opportunity, some would say an incentive, for those who would exploit its complexity to avoid compliance, thus placing an unfair share on others.
As Nina Olson, Mr. Speaker, said, the National Taxpayer Advocate stated in December in her annual report to Congress: ``The most serious problem facing taxpayers and the IRS alike is the complexity of the Internal Revenue Code. The only meaningful way to reduce these compliance burdens is to simplify the Tax Code enormously.'' So said Nina Olson, the National Taxpayer Advocate.
All of us, of course, bear some responsibility for the complexity of our Tax Code, Democrats and Republicans and every American who believes that the tax preferences that he or she utilizes are worthwhile. Considered individually, the tax preferences that clutter the code certainly can be rationalized and explained. Collectively, however, they are a jumble of confusion that have a corrosive effect on our democracy.
As Paul O'Neill, the former Secretary of the Treasury said, ``One of the unseen consequences of the Tax Code's complexity is the sense it leaves taxpayers that the system is unfair, and that others pay less tax because of special advantages.'' Almost every American, I think, feels that, including those who take special advantage.
A few facts illustrate the scope of the problem, Mr. Speaker. In 1913, the Tax Code was a mere 500 pages in length. Today, the code and regulations total more than 60,000 pages. Four common forms, form 1040 and schedules A, B, and D, take an estimated 28 hours and 30 minutes to prepare. Think of that. They are relatively simple forms. When the IRS started tracking this information in 1988, the average paperwork burden was 17 hours and 7 minutes, about 11 hours less. Even the simplest form in the IRS inventory, a 1040 EZ, perhaps misnamed, now requires 3 hours and 43 minutes for the average taxpayer to prepare, up from 1 hour and 31 minutes in 1988.
Complexity costs more than $100 billion. That cost is in accounting fees and the value of taxpayers' time to complete their returns. This is roughly equivalent to what we spend to run the Department of Education, Homeland Security, and State. Think of it: the cost of complexity for our taxpayers, $100 billion more than we spend on the Department of Education, Homeland Security, and the Department of State. Not surprisingly, Mr. Speaker, more Americans than ever rely on tax professionals. I know I do. Nearly 60 percent rely on tax professionals today compared to 48 percent in 1990.
If the administrative burden does not convince you that reform is crucial, the crisis in noncompliance should. The IRS has estimated there is a $311 billion annual tax gap due to underreporting, underpayment, and nonfiling. Think of that, $311 billion. The bad news is that the budget deficits we are running up under this administration and the Republican leadership this coming year will be over $400 billion. So even if we collected every nickel of that that was due and owing, we still would not solve our budget deficit, but it would help.
Now, leaders in the Republican Party have repeatedly proclaimed their commitment to tax reform and simplification. We have heard that. The party that wants to bring down taxes wants to simplify the code.
Both of us can share that objective. However, let us look at the facts.
The gentleman from Texas (Mr. DeLay), the House majority leader, stated in April of 2001, ``We are pushing forward with our campaign to reform the Tax Code. We are making it fairer, flatter, simpler, and less burdensome to the American people.'' That is what the gentleman from Texas (Mr. DeLay) said in 2001, that they were making the Tax Code fairer, flatter, simpler, and less burdensome. But the facts, unfortunately, and no one should glory in these facts, but, unfortunately, the facts say otherwise. Republican tax bills during the last 4 years have added, added more than 10,000 pages to the code and regulations. In fact, during the 108th Congress, the Republicans orchestrated nearly 900 changes in the Tax Code.
Now, those of us that have been here as long as the gentleman from Massachusetts (Mr. Neal) and I will remember passing a tax reform package which was designed to protect the taxpayer. And a report of our colleague, our Republican colleague, the gentleman from Ohio (Mr. Portman), who is now going to be our trade negotiator, that report said that one of the things that Congress had to stop doing if the IRS was going to be able to efficiently and effectively administer the Tax Code was to stop changing it every year.
We have changed it every 4 years of this administration. And, of course, today on the floor of the House of Representatives, we changed it again. We made it more complex. In fact, many of us argued that what we did was really raise the taxes on really thousands of farmers and small business people as a result of the change we made.
Just one bill, the Republicans' so-called American Jobs Creation Act, resulted in 561 changes to the Tax Code, requiring more than 250 pages of tax law changes. Is it any wonder why it takes Americans so long to fill out their forms? The Joint Economic Committee notes how this one new law will require more than 10 percent of all small businesses to keep additional records, result in more disputes with the IRS, increase tax preparation costs, and require additional complex calculations.
Clearly, our tax system must be made simpler, fairer, and more efficient for the sake of every American, for every family.
Now, there are some people, frankly, who are wealthy and can afford unlimited accounting services to make sure that they take every advantage of the Tax Code, but the overwhelming majority of Americans are not in that position. Because of that, it is incumbent upon the Congress of the United States and each one of us individually to ensure that the Tax Code is fairer, simpler, and more efficient and that Americans can understand it and take much less time to fulfill their obligations to their country.
I think President Bush has taken an important first step in this effort by appointing the bipartisan Advisory Panel on Federal Tax Reform. I applaud him for doing that. It is chaired by former Senators Connie Mack, who served in this body as well; and John Breaux, who also served in the House of Representatives.
The panel, in my opinion, must present options for reforming the Internal Revenue Code. The requirement to do so is prior to July 31. I am hopeful that Congress can act on this important issue during the 109th Congress. I believe there is an increasing momentum, Mr. Speaker, among taxpayers for real reform; and Democrats intend to join and lead this fight. Democrats want to see reform to the Tax Code. Democrats are committed to a fairer, simpler, more efficient Tax Code.
For example, we need to diffuse the middle-class time bomb, the alternative minimum tax. Now, the alternative minimum tax was adopted for people who were making hundreds of millions of dollars, corporations making hundreds of millions of dollars, maybe billions, but were paying no taxes at all. So what the Congress said some decade and a half ago, was that, look, everybody in our country needs to contribute to its defense and its support. Therefore, we will have an alternative minimum tax.
That was never intended to adversely impact middle-income earners, not in the million dollar category, but far less than that. It was not intended for them. But Americans are now finding, two-earner families doing reasonably well, but just making their college tuition payments for their child, paying for their cars so that they can get to and from work, and paying for their mortgage payment because maybe they had to get a new house and housing prices have gone up; they are not having an easy time, and what they are finding now is they are getting caught in the web.
We should have fixed this 4 years ago. We should have fixed it 3 years ago. We should have fixed it 2 years ago. We should have fixed it last year. We should fix it this year. We are not going to. The President has not proposed fixing it, and the Republicans do not want to fix it either. Why? Because it is a secret stealth tax increase on middle-income and upper-middle income Americans.
That is why we do not fix it, so that the majority party can posture that they are cutting taxes while at the same time raising taxes. The AMT, or the Alternative Minimum Tax, will hit an estimated three million taxpayers this year, requiring them to pay $6,000 or more on average than they would otherwise owe, and which, when this was adopted, was not intended to have any effect on them. And the number of taxpayers subject to this tax will explode.
Listen to this, my friends. All of our constituents ought to know this. It will go from the three million who are adversely affected today to 35 million taxpayers.
Now let us say, just for the sake of argument, that there are only 15 million families there. So 50 million families, in other words, 35 million taxpayers who have a wife and children, so maybe as many as 50 or 60 million people, 35 million taxpayers will be included in the provisions of the Alternate Minimum Tax by 2010.
Furthermore, Mr. Speaker, because the AMT was not indexed for inflation, that is the way we could have protected the middle-income folks, we did not do it. We should be doing it now. We should have done it in 2001, we should have done it in 2002, we should have done it in 2003, we should have done it in 2004, and we should have done it this year. We are not doing it. It ensnares more and more middle-income taxpayers because it was not indexed.
We also, Mr. Speaker, need to take a hard look at moving toward a return-free income tax system, a system that would say to most taxpayers, you do not have to get involved in paperwork. Here is the deal. You can file very easily because the tax system will be much simpler and much fairer.
Think how much better Americans would feel, not that they are going to feel great about paying their taxes. None of us feel great about paying our taxes. But all of us understand, as a democracy, that it is necessary if we are going to have a national defense and if we are going to have other services in this country.
We need to simplify, Mr. Speaker, as well tax rules for small businesses. No reason small businesses ought to be under a mountain of rules and regulations and tax requirements. We ought to stop individuals and corporations, however, from gaming the system, which means that small businesses and individuals have to pay more than their fair share. We need to consider overhauling the corporate income tax and focus on eliminating tax breaks that actually encourage American companies to move jobs overseas.
The gentleman from Massachusetts (Mr. Neal) has been very involved in this entire issue, and perhaps he will discuss it when I yield to him. Overseas, rather than giving tax incentives to corporations and businesses, to create and keep jobs here in America for Americans.
The American people are acutely aware of the unnecessary complexity and dire need for real tax reform in America today. The Republican party has not led on this issue. And the President can call a commission together, but for 5 years they have takenno action.
The American people need and deserve a tax system that is simpler, fairer and efficient.
I would like to yield now to some of my colleagues who are here. The gentleman from Georgia (Mr. Scott) has been here for a long time waiting to speak, and I thank him for being here. I yield to the gentleman from Georgia.
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Mr. HOYER. I thank the gentleman from Georgia for his remarks and for his restating the commitment the Democrats have to ensuring that Americans get a fairer, simpler and more efficient tax system that treats them fairly and treats everybody else fairly as well.
Now it is my great pleasure, Mr. Speaker, to introduce or to yield to one of the senior members of the House of Representatives, the distinguished gentleman from Massachusetts, mayor of his town before he came here, and as a member of the Ways and Means Committee has been in the leadership of opposing complicating the Tax Code, opposing making it less fair and opposing tax legislation which sent jobs overseas. He has been a true giant in the leadership on this effort, and I am pleased to join with him in this effort that we join tonight. I yield to the gentleman from Massachusetts (Mr. Neal).
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Mr. HOYER. Mr. Speaker, I thank the gentleman from Massachusetts (Mr. Neal). That is our pledge. The Democrats are going to work. We are going to work hard, and we will work with the President if the President wants to work, and we will work with the other side of the aisle to make this a fair, simpler, more efficient tax system. We owe that to the American public. We want to be the party of reforming our tax system so that Americans will say, I understand it, nobody likes to pay taxes but I am paying a fair share.
I thank the gentleman from Massachusetts (Mr. Neal). It is now my honor to yield to my good friend, the distinguished gentlewoman from Cleveland, Ohio (Mrs. Jones), who has done such an extraordinary job during her tenure here and is now a member of the Committee on Ways and Means.
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Mr. HOYER. Mr. Speaker, I thank the gentlewoman for her comments. I think her reading of the letter is an example of all that we are hearing from Americans:
Congressman, this Tax Code I cannot understand. Congressman, this Tax Code costs me a lot of money and a lot of time to comply. And I want to comply and I want to be honest and help my country but, golly day, I am having trouble figuring it out. Will you please make it fair? Will you please make it simpler and just make it work better for me, for my family, and for the country.
Mr. Speaker, I yield to someone who is working very hard to do just that for his constituents and all Americans, the newest member of the Committee on Ways and Means, the gentleman from Illinois (Mr. Emanuel), who does an extraordinary job.
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Mr. HOYER. Mr. Speaker, I thank the gentleman for his comments, and I congratulate him for those clinics. I think that is a wonderful idea. I think very frankly we ought to have similar clinics and cooperate with a number of the people in our communities who could help people, particularly the EITC is difficult to understand for Members, much less those who it is designed for, to make sure people at the very poor end of the income scale have enough resources to support their kids. That is what it is all about, and this is what we think ought to be done.
So I thank the gentleman. I also want to thank him for the simplification of all the child tax credits that are now available because if we can get that just one item, as you pointed out, down from those 200-plus questions down to 10 or 12 questions, we are going to save a lot of money, a lot of time and a lot of mistakes, a lot of mistakes. The EITC is complicated, but there are a lot of mistakes made, not by people who want to commit fraud but who simply make mistakes.
I am glad that we are joined now by, in my view, one of the real stars of the new class in the Congress. She has been sent to us from south Florida, an area where I used to live, and she is doing an extraordinary job. I yield to the gentlewoman from Florida (Ms. Wasserman Schultz).
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Mr. HOYER. Mr. Speaker, I thank the gentlewoman and she left me a beautiful segue into the closing of our action matching our words. That is what ought to happen, and when that does not happen, people get pretty cynical. Let me refer to some words.
In 1996, Newt Gingrich was the Speaker of this House and he said, ``The current system is indefensible,'' referring to the tax code. He was right. ``It is riddled with special interest tax breaks. Today's tax code is so complex that many Americans despair that only someone with an advanced degree in rocket science could figure it out. They are wrong.
Even a certified genius such as Albert Einstein needed help in figuring out this Form 1040.'' In 1996, 8 years ago, the Republicans were in charge of this House, and Mr. Gingrich was our Speaker.
A year later, Mr. Gingrich said this as the Speaker of the House, ``So we want to move towards a simpler tax code that takes less time to fill out, that is easier for the American people,'' 1997.
In the last 7 years, the Speaker's party, the Republican party, has made the tax code 25 percent more complicated than it was in 1997, moving in exactly the opposite direction.
In 2001, 4 years later, 2001, President Bush said, Americans want our tax code to be reasonable and simple and fair. He was absolutely right. That is what I want. That is what every American wants. These are goals that have shaped my plan. What plan? No plan, no plan here, no plan in the Committee on Ways and Means, no plan from the White House.
And then in 2004, fast forward 3 years, just last year: ``The administration has made tax simplification a priority, and we look forward to working with Congress to achieve it. A simpler code is something we owe honest taxpayers, and the worst thing of all for the tax cheat.''
Mr. Speaker, we agree with the President, but what did we do today? This very day, we made the Tax Code more complicated, not to mention costing many small farmers and small businessmen more money than they otherwise would have paid with existing policy.
Mr. Speaker, my Republican friends, my Democratic friends, on behalf of the Democratic Party, I pledge that we are going to fight to reform a system that is complicated, that is unfair, and that is inefficient so that Americans will say, as painful as April 15 may be, at least it was easier to fill out, at least I think it was fair, and at least I think it will be handled in an efficient way.
Democrats are committed to reforming this Tax Code so it will be simpler, fairer, and more efficient.
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