Due to partisan gridlock, our federal tax code has not been overhauled in 30 years. As a result the complexity of the tax code has mushroomed. While some deductions and credits make sense – the mortgage interest deduction, charitable deduction, and earned income tax credit – U.S. senators and House members have also added a mountain of tax loopholes for wealthy special interests. For example, yearly fees paid to hedge fund managers are inexplicably taxed at the lower capital gains tax rate rather than at the ordinary income tax rates paid by regular wage-earning Americans. That has to change.
Also, while we have a relatively high 35 percent statutory corporate tax rate on the books, the effective tax rate (the rate actually paid by corporations) is far lower due to numerous exemptions, deductions, and credits. Large multinational corporations have learned to offshore income to foreign tax havens just as they have learned to offshore manufacturing jobs to low-wage foreign countries. Small and medium-size corporations without foreign operations and teams of sophisticated tax lawyers are stuck paying the higher statutory rate and find it all the more difficult to compete against giant multi-national companies. Overall, the percentage of federal revenue from corporate taxes has steadily decreased from approximately 30 percent in the mid-1950s to 10 percent or less today.
Despite the fact that our federal tax code has become an antiquated mess, Congress has failed to do anything to fix it. Washington is paralyzed by a tidal wave of corporate PAC money. We must elect independent legislators who can take on important issues like tax reform that the special interests do not want addressed.