Treasury Secretary Supports Tax Relief, Code Simplification
On the upside, because of President Bush’s tax relief plan enacted last summer, working Americans are keeping more of what they earned last year and will keep even more of it this year, U.S. Secretary of the Treasury Paul O’Neill told members of the Economic Club Monday.
On the downside, there’s more work ahead.
Even after tax relief, total 2002 tax receipts are expected to be more than 19 percent of Gross Domestic Product, compared to the average of 18 percent over the past 50 years. The government’s tax take is at a record high and taxpayers have the additional burden of complying with a tax code so complex it’s “an abomination,” O’Neill said.
O’Neill oversees the administration of the tax code and the IRS employees who, he said, face the “impossible task” of sorting through the paperwork and the complexities of 9,500 pages of tax law.
“We have got to simplify the system, for the sake of every taxpayer and for the sanity of these IRS employees who are just trying to do their jobs.”
O’Neill said the Bush Administration tax relief plan was a “great achievement.” In addition to the distribution of some $36 billion in refund checks to taxpayers last summer and fall, the plan immediately cut the 15 percent income tax bracket to 10 percent.
As other provisions are phased in over the next several years, the tax package will:
- Reduce the marriage penalty dramatically.
- Double the child credit up to $1,000 per child.
- Abolish the death tax.
All told, O’Neill said, 104 million individuals and families will get an average tax cut of about $1,040.
Furthermore, the Job Creation Act President Bush signed into law created new tax incentives designed to spur corporate investment in new plants and equipment.
“I think business investment will be a key reinforcement for continuing economic recovery,” O’Neill added. “The Job Creation Act was designed specifically to encourage investments, especially from smaller businesses.”
However, the tax-relief provisions enacted last year are set to expire in 2011 in accordance with Senate budget rules.
“Can you imagine? We’re going to snap back to where we were last year in 2011,” he stressed.
“That’s why we need your support in urging Congress to eliminate the ‘sunset’ provision on tax relief, making the tax cut permanent,” O’Neill said. “Uncertainty stemming from the sunset clause will undermine investment so the earlier we act on this, the better.”
The Senate is expected to consider an amendment that would make permanent the death tax phase-out passed last year, and the House is to consider legislation that would make all of last year’s tax relief provisions permanent as well.
In addition to high tax rates, the tax code compliance process burdens and drains the economy, stifling both investment and job creation, he said.
According to O’Neill, taxpayers spend as much as $125 billion annually, or about 1 percent of GDP, just trying to comply with the tax code. On top of that, they spend some $9.4 billion to pay the IRS to administer the code.
“The complexities of the tax code divert resources into unproductive compliance costs — employing lawyers and accountants instead of productive engineers and innovators,” O’Neill remarked.
The economy would be better off if the tax code were simplified and the lawyers and accountants were retrained as engineers, he quipped.
But simplifying the tax code isn’t an easy task because every word in the 9,500-page document was inserted for a reason. He said the Treasury is now conducting a review of tax laws, “trying to find fixes for some of the biggest headaches.”
Treasury released the first report on the review Monday, which focuses on the confusing definitions of “child.” There are five different definitions in the tax code.
As is, the code can make it difficult for taxpayers with kids to receive the various benefits Congress intended them to have, such as the child credit, the child care credit, earned income tax credit, and dependent care credit, he said. Treasury is proposing “to harmonize the definition of child” into a single definition to make it easier on parents.
O’Neill said more reports, as well as tax code simplification proposals for both individuals and businesses, will be released in coming weeks.
“The American people deserve a better system,” he said. “I hope that by publishing detailed descriptions of these complexities, we can begin a cooperative effort with the Congress to undo some of these knots.”
O’Neil believes the economy is poised to return to robust growth. He predicted that the country will see continued economic improvement this year and that business spending will revive as companies begin to restock inventories and invest in projects they’ve had on hold.
O’Neill, who has been Treasury secretary since January 2001, is former chairman and CEO of Alcoa and former president of International Paper Company. He worked for the U.S. Office of Management and Budget from 1967 to 1977.