House GOP Pledges to ‘Bust Up’ IRS in Tax Plan

‘We’re going very bold on both the business and individual reforms so that we can grow this economy,’ Brady says

IRS headquarters in Washington. IRS headquarters in Washington.

Reforming the tax code will take a three-pronged approach that includes “busting up” the Internal Revenue Service, House Ways and Means Committee Chairman Kevin Brady said Wednesday.

Explaining how the tax-writing committee plans to overhaul the tax code this year via the GOP’s Blueprint, Brady, Republican of Texas, said at an event held by the Financial Services Roundtable in Washington that the plan involves the following:

  • “Redesigning” the tax code so that American companies “large and small” can compete anywhere in the world;
  • Fairness and simplicity for families and individuals that allows 95% of Americans to file their returns on a simple post card style system; and
  • “Busting up” the IRS to redesign it into a 21st century organization with a singular mission — customer service centered around three units: businesses, individuals and to dispute resolution.

Acknowledging that “it is politically difficult” to enact tax reform, the Blueprint plan does not involve merely “wringing money” out of taxpayers, “which is what we have today; we’re proposing a tax code built for growth,” Brady said. 

“Tax reform only happens once in a generation … It may not happen again in another generation. It is not enough to simply tweak a few things in the tax code and call it a day. We’re going very bold on both the business and individual reforms so that we can grow this economy in a significant way and give people more control.”

The GOP plan, he said, proposes the “lowest tax rates for all corporations and all sizes of businesses, an equal 43% tax rate cut regardless of size, regardless of structure. We want Washington to take less so businesses can invest more in people and the future. We want investments to be immediately written off.”

Another “key part” of the tax blueprint redesigns “our international tax system.” Worldwide, competitors have “lowered their rates, they no longer tax worldwide and they tax at the border. So we match them. We propose to no longer tax U.S. earnings overseas, making our companies more successful but allowing that capital to flow back to the U.S. to be used for new investment, research and manufacturing.”

Competitors “all border-adjust their taxes — they take taxes off their products heading toward the U.S. and they put it on our products heading into their country. As a result, today, products made in the U.S. are at a tax disadvantage here and a tax disadvantage abroad. And it creates major incentives for U.S. companies to move overseas today,” Brady said. “Because of our tax code, the best place to access the U.S. market is to be outside the U.S. market. That won’t continue. That can’t continue. So we’re proposing to border adjust our taxes as well.”

Another measure is to narrow the tax code by asking companies: “Is your product consumed in the U.S.? If so, it will be taxed equally, at a 20% tax rate, whether it’s produced in the U.S. or abroad, whether it’s a foreign or domestic company,” he continued. “If your product is consumed in the U.S., your product, service or intellectual property will be taxed at the same rate: 20%.”

Doing this “levels the playing field between imports and exports because today, in my view, U.S. companies large and small are competing with one hand tied behind their back. Equal taxation creates true competition.”

The plan also eliminates the alternative minimum tax and the estate tax, which Brady argued is the “No. 1 reason family-owned businesses and farms aren’t passed to the next generation.”

The second major reform goes “all in for fairness and simplicity” for families and individuals, Brady said, by proposing to “flatten” the current seven tax brackets to “nearly three.”

Said Brady: “We lower the tax rate at each level, with the top rate at no more than 33%. We preserve more of the first dollars earned, increase the standard deduction and … after we flatten the bracket and lower the rates.”

For the “postcard” filing approach, the blueprint keeps in place “the elements most families count on: the home mortgage deduction, the charitable deduction — we’re looking at ways to lock in more charitable giving,” he said. Plus, “we keep the child tax credit and the college tax credit, which we’re redesigning — especially on the college side to reward those kids going into technical school.”

Another key to tax reform, he argued is a “simpler and fair tax collector. So we propose to bust up the huge, unaccountable IRS,” and redesign it into “three smaller, more focused units.”

A business unit to be staffed with business tax experts, “focused on timely, accurate information,” Brady said.

A unit devoted to families, “to make sure this is a customer-service-first IRS,” he continued.

Also, “because we’re really tired of hearing about families and small businesses that get into a tax dispute with the IRS, sometimes relatively minor … spending years and thousands of dollars to litigate,” the blueprint proposes allowing issues to be resolved in small claims court.

--- Check out Trump Pledges to Cut Regulations by 75%, Will Face Hiccups in Congress on ThinkAdvisor.

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