The more complex the tax code, the more the wealthy benefit

Marcel Proust wrote the longest novel in history. “Remembrance of Things Past” was first published in 1913 and contains over 1.2 million words. The book continues to remain the record holder in the Guinness World Record Book, but there is another “book” that contains four times as many words as Proust’s novel.

It is a book that few, if any, have ever read cover to cover, contains over 4 million words and gets longer every year. Yet, every working American has come in contact with it. That “book” is of course, the tax code.

Just over 100 years ago, the tax code was only 27 pages long; short enough so every taxpaying American citizen could read and understand it. However, throughout the last century, as America grew, so did the tax code, and as the tax code grew, it transformed from a document an “average Joe” could read and understand, to a document that relies on a $10 billion industry to help Americans interpret it.

{mosads}In conjunction with its increasing size is the rising tide of special favors littered throughout it. As noted in former Sen. Tom Coburn’s (R-Okla.) Tax Decoder, “The biggest breaks go to corporations and individuals who can afford the best lobbyists, lawyers and accountants, leaving everyday Americans to fill the gap.”

While it is true the top 1 percent of earners in this country pay 24 percent of all U.S. taxes, many wealthy individuals contribute little or nothing in taxes. In fact, according to the Tax Policy Center’s analysis, about 4,000 millionaires paid no federal income tax in 2011. 

The top 1 percent is a hotly-debated topic, but they are not the only ones to blame for the $400 billion-plus tax gap (difference between taxes paid and taxes owed) our country has every year.

Corporations, like high-earners, can afford to pay the best accountants and lawyers, so they can navigate the complicated tax code and find the biggest tax breaks. According to one study, in 2014, 111 of 288 Fortune 500 companies surveyed either paid zero taxes or received a refund in at least one year from 2008 to 2012. 

In addition, many multinational corporations use the United States’ worldwide tax system to harbor earnings overseas. According to securities filings, U.S. companies are holding over $2 trillion overseas. The current system, which allows U.S. companies to defer foreign-earned income until it is repatriated, creates an incentive for multinational corporations, like Apple, to locate operations in countries with lower tax rates in order to avoid U.S. corporate tax.

While obtaining deductions under law is legal, it is not hard to see the U.S. tax system is being taken advantage of, and Washington is to blame. After all, these tax loopholes were created by Congress. 

For example, the New Markets Tax Credit (NMTC) was created to spur job growth in low-income areas, but instead has been taken advantage of by wealthy investors and Wall Street banks, using over $1 billion of the provision’s benefits.

Congress has tried to fix some of these loopholes, but without comprehensive tax reform, creative usage continues to allow individuals and corporations to take advantage of the tax code. 

In 1986, Congress worried that federal subsidies for sports stadiums were causing a great burden on taxpayers, so they prohibited the use of “private equity” bonds from financing stadiums. However, local governments soon found out they could use governmental bonds to pay for stadiums, as long as taxpayers footed most of the bill. Currently, “as long as only 10 percent or less of a governmental bond [is] being repaid with stadium revenue, the bond [can] finance a stadium.”

While some of these tax credits have good intentions (NMTC created to help low-income areas, stadiums seen as public goods), many are being taken advantage of. The loopholes listed above are only a fraction of how outrageous the tax code has gotten over the past century.

If the goal in Washington is to truly fix our tax code, unlock economic growth and close the $406-billion yearly tax gap, the tax code must be simplified. Republican leaders have indicated that they want to pursue tax reform through a process that only requires a simple majority — rather than 60 votes — in the Senate.

To unlock this procedure known as reconciliation, they must pass a budget resolution. That budget reconciliation bill could be voted on this week in the House, but has produced infighting between Republican members. Failure to pass a budget would spell doom for tax reform and be a boon for the special interests. 

For decades, the tax code has burdened everyday Americans that do not have the resources to navigate through its complicated web. Without comprehensive reform, the tax code will continue to grow instead of the economy. 

Adam Kazda is the digital content creator at Restore Accountability, an organization dedicated to engaging young Americans on the nation’s fiscal challenges and inspiring more accountability. He previously served as healthcare legislative correspondent for Sen. Jeff Flake (R-Ariz.) and as legislative correspondent for former Sen. Tom Coburn (R-Okla.), MD.

The views expressed by contributors are their own and not the views of The Hill.