Wyden, Emanuel Provide Real Tax Relief for Middle Class in "Simpler, Flatter, Fairer" Reform Plan
Washington, DC - As millions of Americans scramble to finish their taxes on the eve of Tax Day, U.S. Senator Ron Wyden (D-OR) and U.S. Rep. Rahm Emanuel (D-IL) today introduced comprehensive tax reform legislation that contains major tax relief for America's middle class by making the 1.4-million word U.S. income tax code simpler, flatter and fairer.
Wyden is a member of the Senate Finance Committee. Emanuel is a member of the House Ways and Means Committee.
Wyden and Emanuel's bill, the "Fair Flat Tax Act of 2007," allows every taxpayer to file taxes on a simplified, one-page 1040 form, collapses individual tax brackets from the current six down to three and sets one, flat corporate rate.
Additionally, on average families with incomes of up to approximately $150,000 a year will get needed tax relief. The plan triples the standard deduction, providing tax relief to most Americans and saving countless hours in tax preparation for most people who will no longer need to itemize their deductions. It also ends the disparate treatment of work and wealth under the current tax code by getting rid of the preference for capital gains and dividends over wage and salary income.
"My legislation means that the overwhelming majority of taxpayers will see a tax cut, particularly the middle class. It gets rid of a two-tiered system that taxes the cop walking the beat more than the millionaire living off of his Exxon stock," Wyden said. "It's been more than 20 years since the tax code was reformed. It's time to pare down the special interest tax breaks so we can combine the simplicity of a flat tax with fairness and progressivity, like we did in 1986."
"It is time to reform the tax code," Emanuel said. "Not only will the Fair Flat Tax plan simplify and reform the code, the bill also provides long-overdue relief to middle-class taxpayers."
Wyden and Emanuel said the Fair Flat Tax Act will simplify the nearly 10,000 sections of U.S. tax law into a system Americans can understand and with which they can easily comply. Ultimately, it will make the tax code fairer by providing a major tax cut for middle-class families who are struggling financially, while calling on the most affluent Americans and the nation's corporations to pay their fair share.
All taxpayers will be able to use a straightforward, one-page 1040 to file their taxes. The new 1040 will shrink in length to 30 lines, down from 77 lines. For individuals, the number of brackets is reduced from six to three: 15 percent, 25 percent and 35 percent. The individual AMT is eliminated in Wyden's legislation, saving millions of filers an average of 63 hours on tax preparation. Emanuel proposes to fix the AMT. A single, flat corporate rate of 35 percent will eliminate the illogical roller coaster of the corporate code.
Wyden and Emanuel added that eliminating certain credits, deductions, exclusions and preferences - especially in the corporate code - makes it possible to provide real tax relief to the middle class. The Fair Flat Tax Act does retain many of the individual credits, deductions, exclusions and preferences most commonly claimed, including: deductions for mortgage interest and charitable contributions, credits for children and earned income. Additional preferences retained help our men and women in uniform, our veterans, teachers, the elderly and disabled, and help people pay for health care and higher education and build up pensions and retirement savings. On the corporate side, the bill ends a number of tax loopholes and specialized tax breaks that favor business in one sector over another, while working to root out provisions that perpetuate inefficiencies in the health care system and to end the use of pass-through entities as tax shelters.
The lawmakers added that by simplifying the code, there will be other benefits. With a simpler system, it will be harder for people to cheat the system and easier for the Internal Revenue Service (IRS) to catch those that do. Currently, there is a tax gap between taxes owed and collected of over $300 billion per year. The Fair Flat Tax Act can make a significant dent in that, raising revenue from a source that won't increase taxes.
"Major tax relief for working families is one of my top priorities," Wyden said. "Work and wealth should be treated equally, and Tax Day should not be bureaucratic water torture. Americans spend billions of dollars and millions of hours filling out their taxes that could be spent with their families, volunteering or just taking a break. When you have a 1.4 million-word, 10,000-section tax code, it should be obvious that something is not right."