A well-designed tax code can promote economic growth and reduce inequality. It can make revenue levels more sustainable and rebalance the economy away from dependence on foreign aid and natural resource revenues (see Sustainable revenue and reducing dependence on foreign aid).
It can reduce complexity, increase efficiency in administration and compliance, and encourage savings and investment that provide the government with needed funds. It can make the economy more resilient to recessions and downturns, allowing households and businesses to weather financial difficulties without significant hardship. It can also help ensure that high-income earners and large corporations pay their fair share of taxes.
Our current tax code is plagued with deductions, exemptions, and credits that disproportionately benefit affluent Americans. The result is that most taxpayers itemize only because they have the necessary income and expenses to do so, but only one-third of Americans actually do so. Because the value of a deduction is generally determined by an individual’s marginal tax rate, itemization is highly regressive.
In addition, our tax code is complex and labor intensive for individuals and businesses. It is replete with multiple brackets, deductions, and preferences that are often difficult to understand. Our tax code is heavily regressive, imposing a higher marginal rate on lower incomes than on higher incomes and that does not allow people to adjust their rates as their incomes rise or fall. The reform lowers marginal income tax rates moderately for many middle-income taxpayers and eliminates the top bracket entirely, which boosts incentives to work, save, and invest.