The JCT has issued a report summarizing the Federal tax system and tax reform options.
The summary of the report begins as follows:
The Senate Committee on Finance has scheduled a public hearing on July 18, 2017, entitled “Comprehensive Tax Reform: Prospects and Challenges.” This document,1 prepared by the staff of the Joint Committee on Taxation, provides discussion of the present-law Federal tax system and considerations for evaluating tax systems. Further relevant data is summarized in figures and tables in the Appendix.
Part I of this document summarizes the four main elements of the current Federal tax system: (1) income taxes on individuals and corporations; (2) payroll taxes on wages (and corresponding taxes on self-employment income) to finance certain social insurance programs; (3) estate, gift, and generation-skipping taxes, and (4) excise taxes on selected goods and services. In addition, the current taxation of cross-border transactions and the tax-favored treatment of retirement savings are highlighted.
Part II discusses how tax systems can be evaluated using the concepts of efficiency, fairness, and simplicity. Efficiency is a measure of how well resources are used and allocated in an economy. Efficiency may be altered by taxes that promote or discourage optimal behavior. Fairness can be measured by the degree to which similarly situated individuals are treated similarly or by the degree to which the capacity of individuals to bear tax burdens relates to individual tax burdens. Simplicity may affect how well a tax system functions. While a simple tax system may allow for easy compliance by taxpayers and administration by the government, a complex tax system may better target taxpayers for efficiency and fairness considerations. The design of a tax system often involves tradeoffs between these three different goals.
Posted by Lewis J. Saret, Co-General Editor, Wealth Strategies Journal.