WHITE PAPER -- A Blueprint for Efficient, Equitable and Inclusive Tax Reform

Tuesday, March 4, 2014

Tax Reform and the National Urban League

The modern American tax system was established to provide a steady stream of income to the government for the provision of public goods and services, from which all citizens benefit. However, since the last major tax overhaul in 1986, the tax code has grown increasingly costly and complex. According to the New America Foundation, the federal government will spend a combined $1.34 trillion on tax expenditures in FY 2013.[1] While tax expenditures – deductions, credits, exemptions and loopholes – are commonly used to incentivize business and social behaviors to meet public policy goals, they often favor certain industries and individuals over others. Currently there are approximately 80 corporate and 200 individual tax expenditures in the code, many of which undermine the overall progressivity of the income tax.[2]

As a result, most experts agree the U.S. tax system is in need of reform. While there is broad agreement that change is necessary, there is less agreement about which reforms should be implemented. The current appetite for tax reform is motivated largely by three competing interests:  (1) mounting pressure to get the national debt and deficit under control, (2) public sentiment that large corporations and the wealthiest Americans don’t pay their fair share and (3) business community concerns over distortions created by the United States corporate tax rate, which at 35 percent, is one of the highest corporate tax rates in the world and includes deductions and/or credits that favor certain industries over others.

Based on these trends, the following is at stake for the National Urban League and its partners regarding tax reform:

  1. Economic growth and job creation in urban communities to allow communities of color and low- to moderate-income individuals and families the opportunity to build wealth.
  2. Recalibrating the tax code so that the tax burden is not unfairly borne by certain types of businesses, low-income consumers and the middle class.

3.       Simplification of the tax code for small and large businesses that will reduce compliance costs, place American businesses on a level playing field with global competitors, and spur innovation, investment and job creation for American citizens.

National Urban League Guiding Principles for Tax Reform

The National Urban League believes that any tax reform should substantially rein in tax loopholes and expenditures while simplifying remaining deductions and credits to make them better targeted and more effective at promoting economic mobility for low-income families and strengthening the middle class. When effectively targeted, the tax code can be an important tool for incenting job creation, economic development and asset building for low and middle-income families, underdeveloped communities, as well as small and large business owners. Therefore, the tax code should be restructured to produce equitable, efficient, simple and inclusive outcomes that benefit all U.S. businesses and households.

NUL’S position on tax reform is guided by the following principles:

·         Principle 1:  Tax reform must address corporate and individual tax rates and deductions collectively.

·         Principle 2:  Tax reform should promote economic growth, help pay for the nation’s education, health and infrastructure needs, and reduce the deficit.

·         Principle 3:  Tax reform should help to lessen income and wealth inequality and protect the most vulnerable in society.

[1] Reid Cramer and Elliot Schreur, Personal Savings and Tax Reform, Principles and Policy Proposals for Reforming the Tax Code, The New America Foundation, July 2013, p. 4.

[2] U.S. Government Accountability Office Information on Estimated Revenue Losses and Related Federal Spending Programs, GAO-13-339, March 2013, http://www.gao.gov/assets/660/653120.pdf. Reid Cramer and Elliot Schreur, Personal Savings and Tax Reform, Principles and Policy Proposals for Reforming the Tax Code, The New America Foundation, July 2013, p. 4.




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