On Eve of Tax Day, Wyden Calls for Comprehensive Tax Reform
On the Senate floor, Senator Wyden today spoke about the need to simplify the nation's tax code:
Mr. President, for the next 33 hours millions of Americans will face mindless, relentless, needless tax torture trying to shovel their way out from under an avalanche of bureaucratic forms as they struggle to complete their taxes.
Citizens Against Government Waste has calculated that Americans spend 4.3 billion hours each year filing tax returns and complying with the tax laws. That is a lot of time to spend on something that is about as interesting as prolonged root canal work. My experience is that many Americans would rather read the phone book than the tax code and the phone book is a lot shorter.
So I am going to give one example of the heavy reading that Americans have in front of us over the next 33 hours. The Alternative Minimum Tax, of course, is a killer tax for millions of Americans and it calculates taxable income differently than the regular tax. It adds a whole new layer of complexity to the code and headaches for our citizens. So I'm going to read just one of the portions of the A.M.T. rules that clobber our middle class taxpayers and it's the one that is used to calculate the size of the interest deduction that middle income folks are allowed in our country. It's under Section C, Mr. President, and it reads:
(C) Interest - In determining the amount allowable as a deduction for interest, subsections (d) and (h) of section 163 shall apply, except that -
(i) in lieu of the exception under section 163(h)(2)(D), the term "personal interest" shall not include any qualified housing interest (as defined in subsection (e)),
(ii) sections 163(d)(6) and 163(h)(5) (relating to phase-ins) shall not apply
(iii) interest on any specified private activity bond (and any amount treated as interest on a specified private activity bond under section 57(a)(5)(B)), and any deduction referred to in section 57(a)(5)(A), shall be treated as includible in gross income (or as deductible) for purposes of applying section 163(d),
(iv) in lieu of the exception under section 163(d)(3)(B)(i), in term "investment interest" shall not include any qualified housing interest (as defined in subsection (e)), and
(v) the adjustments of this section and sections 57 and 58 shall apply in determining net investment income under section 163(d).
It is obvious to all who are still awake at this point, since I have gone through just one of the sections, this is not exactly clarity in American government. I can't find anybody who can get through this and I'd go through it again but I've only gotten ten minutes since our friend, Senator Cornyn is here for his remarks. Now these words were actually written by a human being. The only thing more bizarre than the fact that somebody thought they made sense is that the language was then made law by another group called the United States Congress.
So there's a reason the dictionary definition of the adjective "taxing" means wearingly burdensome. This burden is especially hard, Mr. President, on small business. Small businesses are the engine that keeps our country going, but it is amazing that they can move at all under the weight of what the tax codes subjects them to.
The National Association of the Self-Employed, Mr. President, is today releasing results of a survey of their members that shows what the 45 million small businesses and self-employed persons are going through with their taxes. The group survey, for example, found that almost one in five people who have gone to the IRS to get answers to their tax questions got conflicting responses. Sometimes even from the same office.
The time small business wastes complying with the tax laws is mindboggling. 31% of them recently said that they spent 20% or more of their time every week on paperwork and other tax-related preparations. That is one day a week totally lost to tax preparation. That is a huge penalty that is being imposed on small business for complying with the rules of the IRS.
Another group that is suffering with our tax code is our older people. During the 2004 tax year the IRS mailed 200,000 error notices to older Americans who miscalculated their taxes. 34,000 went to taxpayers who received the same notice in two tax years. 10,000 went to taxpayers who received it in three tax years. What does all of this tell you? It tells that you the IRS can't make their explanations understandable to the nation's older people.
There was one word that kept coming up in the survey over and over again. What the people who were surveyed said is, you've got to simplify the code. Simplify our tax system. So that's what I'm trying to do, Mr. President in the legislation -- and the legislation that I introduced as a member of the Senate Finance Committee. It is called the Fair Flat Tax Act and it eases the burden on our taxpayers by offering them a simplified 1040 form. Instead of this kind of mumbo jumbo, Mr. President, it is one page - one page, 30 lines for every individual taxpayer. The folks over at "Money" magazine, the financial publication, took the one-page 1040 from the Fair Flat Tax Act and they could fill out their taxes in just 15 minutes.
The legislation makes our code flatter. It collapses the current system of six individual tax brackets down to three. The Fair Flat Tax eliminates scores and scores of special interest tax breaks. The revenue derived from these changes is used to hold down the rates for everybody and keep progressivity. More importantly with the Fair Flat Tax everybody in America has a chance to get ahead. There's a new opportunity with this legislation to promote economic growth to grow the American economic pie which is especially important during these times of great economic uncertainty.
Mr. President, one last point. For all of us on the Finance Committee - and I think that Senators of both parties understand this - there is a tax code meltdown coming. The child tax credit ends in 2010, the marriage penalty roars back in 2011, and it comes back harsher than ever. The same meltdown is going to hit income taxes, capital gains, dividend taxes, and if Congress doesn't come up with a thoughtful and responsible bipartisan solution, there is going to be new chaos in the world of taxes.
I've tried this afternoon to be a little bit lighthearted in discussing what is certainly a pretty dry topic for most Americans. But when you look at what they're going through tonight, if you're middle class and you're dealing with the A.M.T., this is obviously not a laughing matter.
The people of this country need tax reform and they need it now. The Fair Flat Tax would make our system simpler, fairer, and more pro-growth. It makes sense for individuals, families, and the businesses of our country. The Congress cannot any longer ignore the tax meltdown that is coming. It is time to fix the broken American tax system and eliminate this kind of needless suffering that so many of our citizens are going to endure over the next 33 hours.
Mr. President, I yield the floor.
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