The Tax Foundation’s Options for Reforming America’s Tax Code 3.0 highlights several concrete changes that would remove parallel rules, reduce carveouts, and consolidate overlapping savings vehicles to make compliance and administration easier.
Eliminating the individual and corporate Alternative Minimum Taxes would remove parallel tax calculations and reduce filing burden for affected taxpayers.
Creating Universal Savings Accounts would replace a patchwork of tax-preferred accounts and simplify rules for households while consolidating federal tax expenditures.
Making full expensing permanent aligns tax deductions with actual business investment timing and avoids temporary low effective rates that prompt stopgap rules.
# What this brief covers This brief summarizes the Options Guide material on reforms that would simplify the federal tax code. It focuses on options that remove duplicate calculations, consolidate similar tax-preferred accounts, and reduce the incentive to layer temporary fixes onto the code.
# Why simplification matters The tax code has become more complex over decades. New carveouts, a growing variety of tax-preferred savings vehicles, and narrowly targeted changes increase compliance costs for taxpayers and administrative burdens for government. Simpler rules make it easier for taxpayers to file and for the IRS to enforce.
# The five types of reforms the guide spotlights
1) Eliminate the Alternative Minimum Taxes
2) Create Universal Savings Accounts
3) Make full expensing the default for business investment Full expensing lets businesses immediately deduct the cost of qualifying capital investments. It corrects a timing mismatch that otherwise discourages investment. While full expensing can temporarily produce low effective tax rates for businesses, these effects level out over time. Rather than countering such outcomes with parallel rules or add-on taxes, keeping a neutral, straightforward cost-recovery system reduces the incentives for stopgap measures that complicate the code.
4) Avoid expanding "no tax on" carveouts The guide highlights how narrowly targeted deductions and "no tax on" treatments add complexity and invite further carveouts. Extending or creating multiple narrowly tailored deductions increases filing complexity and administrative costs. Policymakers seeking relief for particular groups should consider broader reforms or direct changes to eligibility and taxation rather than many small exemptions.
5) Address tax preferences directly instead of relying on patchwork fixes When certain deductions or credits push effective rates below policymakers' expectations, the response has often been to add parallel floors or special rules (for example, AMTs). A simpler approach is to reassess and reform the underlying preferences themselves so that the overall system remains coherent and easier to administer.
# Practical takeaway Lawmakers seeking to simplify the tax code can reduce parallel systems, consolidate similar accounts, and resist adding narrowly tailored carveouts. Eliminating AMTs, creating a Universal Savings Account, and making neutral business cost recovery the norm are practical steps the Options Guide models as simplifying moves.
Tax Foundation’s new resource, Options for Reforming America’s Tax Code 3.0, demonstrates that not all revenue-raising options are created equal—some do more harm to the economy than others for the same amount of revenue.
The “no tax on” deductions show the drawbacks of using narrowly tailored provisions to provide tax relief.
Lawmakers can use this moment to advance a more progressive and racially-just tax system by evaluating tax proposals across five dimensions: equity, adequacy and stability, simplicity, neutrality, and accountability.
Ten years ago, then-Speaker Paul Ryan and Ways and Means Chairman Kevin Brady released the "Better Way" Tax Plan, the blueprint that would eventually become the Tax Cuts and Jobs Act of 2017—the largest overhaul of the US tax code in over 30 years.
A Destination-Based Cash Flow Tax (DBCFT) reduces the tax code’s penalty on investment, narrows its bias toward debt over equity, and removes much of the incentive to shift profits abroad.
On September 15th, Canada announced that full expensing for machinery, equipment, and patent rights will be made permanent and broadened from around 15 percent to two thirds of business capital investment.
Loading more related stories...
Open the app view to save this story, compare related coverage, and continue from the same source.