Taxes destroy, entrap and squeeze Americans -- let's fix them
April 15, 2015
Most Americans instinctively understand that "the power to tax is the power to destroy" — especially meaningful words on the day that our tax returns are due to the IRS.
To appreciate the dangers and dysfunction of today's tax code, we must understand how it functions not only as a destroyer, but as an arbiter of opportunity, propping up those at the top of the economy, holding down those at the bottom, and squeezing everyone else in between.
While developing the latest version of my tax reform proposal (the Economic Growth and Family Fairness Tax Reform Plan) with my colleague Sen. Marco Rubio, R-Fla., I found that the power to tax is also the power to protect businesses, industries and special interests that are sufficiently powerful, wealthy or well-connected to obtain special tax treatment from Congress.
These protections come in a variety of forms. There are the brazenly parochial special rules — the earmarks of the tax code — that benefit narrow interests. There are provisions that grant an unjustified advantage to large and powerful incumbents, shielding them from the rigors of fair competition. And there are narrowly tailored credits that lower the tax liability for favored businesses and fashionable special interests.
By allocating capital and labor according to the preferences of political and economic elites, rather than the wisdom of free people cooperating in free markets, these cronyist protections create a drag on the economy. They impede growth. They dull our competitive edge. And they reward those who invest in influence instead of innovation.
While the tax code helps prop up those at the top of the economy, it often serves as an anchor pulling down those at the bottom of the income scale. Here, the power to tax is the power to entrap.
People of good will can disagree over the proper role of government in providing assistance to those trying to climb out of poverty. But everyone should agree that our public policy shouldn't make that climb harder than it already is.
Yet that's exactly what our tax code does. Together with our welfare system, it penalizes low-income workers for getting a job, getting married, or getting a raise — all critical steps for getting out of poverty.
At the same time, our tax code compounds the economic insecurity plaguing the hardworking Americans in or aspiring to the middle class. For those in vast middle of the economy, the power to tax is the power to squeeze.
The United States maintains the highest corporate tax rate in the developed world. But, as Ronald Reagan reminded us, "business is not a taxpayer — it is a tax collector." It passes the burden of excessive taxation on to the customer, in the form of higher prices, and to its employees, in the form of lower wages.
Likewise, for many working Americans, their tax bill often represents the greatest threat to their economic security.
According to one study, the average American worker in 2013 paid a staggering $16,000 in taxes, including all payroll and income taxes at the local, state, and federal levels.
To someone with a six-figure salary, this may not seem like a lot. But for the average worker making just over $53,000 a year before taxes, that $16,000 could be life changing.
My tax reform plan addresses each of these distortions and inequities.
First, my plan levels the playing field for all businesses — no matter their size or lobbying power — by eliminating special-interest carve-outs and lowering the rate from 35 percent to 25 percent.
On the individual side, my plan simplifies from seven brackets to two, and lowers the rates to 15 percent and 35 percent.
My plan also puts an end to the unfair treatment of America's working moms and dads in the current system. It eliminates the marriage penalty, which taxes married couples at a higher rate than if they had filed individually. And it puts an end to the parent tax penalty, which effectively charges parents twice for federal senior entitlement programs.
Finally, my plan calls on tax reformers to synchronize our tax code with our welfare system, so that low-income workers are able to climb into the middle class without having to overcome exorbitant effective marginal tax rates.
Most years we talk about the need for comprehensive tax reform only on tax day, when our opposition to the current code reaches its annual peak. Let's make this year different. This year, let's recommit ourselves to achieving pro-growth, pro-family tax reform not just on tax day, but every day.
Original op-ed published in the Washington Examiner