How the Current Tax Code Disfavors American Workers

By Scott Asbjornson, executive of AAON, Inc., an HVAC company based in Tulsa, Oklahoma.

The U.S. tax code is 4 million words long, so it’s no surprise that millions of Americans look for help every year just to keep appraised of the ever-changing, complex maze of laws and regulations—and yet few actually get the help they need.

Last year, only a quarter of the more than 100 million taxpayer phone calls to the IRS were actually answered by someone.

That’s a lot of unanswered questions, which generates fear and anxiety among ordinary taxpayers who wonder every year if they might get fined or audited due to an honest tax-filing mistake.

Of course, not everyone has this problem. As an executive of AAON, Inc., a company based in Tulsa, Oklahoma, I’m fortunate to be able to afford expert lawyers and accountants to help my company navigate the complexities of the tax code.

I am not alone. Others do this too, which is why tax compliance is a booming business.

But it’s not just the mindboggling paperwork that causes the inequity. The tax code itself is flawed in its design, influencing the way that people do business by treating business entities differently based on how they are organized.

The complex, dual system of taxation for businesses has developed over a number of years and is now thoroughly entrenched in the code. There is a substantial difference in the way business income from pass-through entities is taxed versus the way corporate income is taxed.

Because pass-through businesses are typically sole proprietorships that are not subject to a business-level income tax, their income is taxed at high individual rates. The Tax Foundation estimates that many small businesses are taxed at a rate of more than 50 percent.

Corporate earnings do not fare any better either, as most of their income is taxed upward of 35 percent, excluding state taxes, and then again when it is paid out in dividends at a rate of up to 23.8 percent for total taxes that exceed 50 percent on a dollar of business income.

This doesn’t just hurt corporations, but it also ends up hurting American workers. A recent report by The Heritage Foundation found that 75 to 100 percent of the burden of the corporate tax falls on workers.

This is unacceptable. We need tax reform that makes the tax code fairer, flatter, and simpler—one that works for every American individual and business, including our nation’s vital small businesses.

Fortunately, Congress has a once in-a-generation opportunity to dramatically overhaul our country’s tax code to provide permanent relief for taxpayers by making it simpler, fairer, and less burdensome.

In the case of businesses, the best and most appropriate answer is to treat all corporate income as pass-through with taxes coming due only at the shareholder level, and reverse the inequitable system.

By cutting rates and reducing tax brackets from the bottom up, it will dramatically increase the standard deduction and eliminate special loopholes and deductions that plague our system and benefit wealthy special interests.

Getting this right has become a personal passion of mine, as I’ve seen firsthand the unfairness of a system that favors society’s most fortunate.

It pains me to know that our nation’s lawmakers use the tax code and other policies to award special benefits to their favored interests to the tune of $100 billion a year, or about $900 per American family.

The fact is, people like me don’t need special tax breaks and government subsidies, but hardworking Americans and small businesses certainly need tax relief and simplification to renew their faith in the greatness of American opportunity.

The window to enact bold and decisive tax reform legislation is closing with the passing of every day. Our country desperately needs principled lawmakers to stand up against special interests who are happy with the status quo.

It would be a shame to see an opportunity to rewrite our tax code slip away.

*This piece was originally published in The Daily Signal, to read click here.

214 Massachusetts Avenue NE, Suite 400, Washington, DC 20002
© 2017 Heritage Action for America. All Rights Reserved.