WEEKLY SENATE UPDATE

TAXING OUR PATIENCE

In 1904, Supreme Court Justice Oliver Wendell Holmes observed that “taxes are what we pay for civilized society.” It is unfortunate, though, that filing our taxes each year pushes our society to an uncivilized mess of dealing with complicated and complex forms. I’m sure that many Maine residents, in the days leading up to April 15^th, became frustrated and sometimes angry at having to make sure their taxes were done correctly and on time. I count myself among these Mainers. The current tax code is far too convoluted and the federal government has done little to make it easier. I have believed for many years now that it needs to be simplified.

Tax compliance imposes a costly and time-consuming burden on Americans. All together, we spend thousands of hours and billions of dollars preparing our taxes each year. More than 60 percent of Americans pay someone else to do their taxes. This is at a total cost of $111 billion per year. Total compliance costs for 2005, including businesses, will amount to $265 billion, or over 20 percent of total federal income tax revenue.

Congress has made more than 15,000 changes to the tax code in the last 20 years- making it even more complex by effectively doubling its length to 66,000 pages. Instructions for even the most basic form, the 1040, are 142 pages long! Needless to say, this is incredibly frustrating for all taxpayers. A recent survey has shown that 80 percent of Americans believe that the federal tax system needs to be simplified. 52 percent even said they would be willing to give up tax deductions if it would make the tax code simpler.

I unequivocally favor a simpler, yet equitable tax system that is not overly burdensome and promotes economic growth – for businesses and for individuals.  I believe that we should seriously examine tax reform for several reasons: the current system is too complex, it discourages saving, it impedes the international competitiveness of U.S. firms, and so many of the taxes it tries to levy go uncollected. Because of its complexity, the tax code can serve as a disincentive to comply with the law. As a result, the intricacy of the code can cause a loss of revenue when people either chose not to abide by the law or make a mistake when they try to. 

The weight of our tax code is particularly hard felt by our nation’s small businesses who struggle to keep pace with difficult record-keeping requirements that force them to focus on meeting the needs of a bureaucracy as opposed to focusing on growing and expanding their businesses.  The Small Business Administration’s Office of Advocacy has reported that small businesses spend an astounding 8 billion hours each year complying with government reports.  They also spend more than 80 percent of this time on completing tax forms.  What’s even more troubling is that companies that employ fewer than 20 employees spend nearly $1,304 per employee in tax compliance costs; an amount that is nearly 67 percent more than larger firms.

As Chair of the Senate Committee on Small Business and Entrepreneurship, I have introduced three pieces of essential legislation to help our nation’s small businesses better navigate and confront our tax code. The first would simplify the tax code to permit small business owners to use the cash method of accounting for reporting their income if they generally earn fewer than $10 million during the tax year. By increasing this threshold to $10 million, more small businesses will be relieved of the burdensome record keeping requirements that they currently must undertake in reporting their income. The second piece of my small business tax legislation would double the dollar amount of new investments a small business can expense and makes that change a permanent part of Federal tax law.  Lastly, I believe we must provide small business owners with greater freedom and flexibility to meet their tax obligations. The Small Business Tax Flexibility Act allows start-up small business owners to meet their tax obligations by using a taxable year that is most suitable to their business cycle if they earn less than $5 million during the tax year. 

Of course, our tax dollars pay for the functioning of our government. But that does not mean that our system of collecting taxes has to be a complicated, onerous burden on both individual and small business taxpayers. I believe that Congress has an obligation to reform our federal tax code. After all, everyone knows that come April 15^th, having to file our tax returns does indeed threaten our patience and common civility.