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Building One Economy With Tax Reform To Reward Work

“The engine of our economy is not Washington, D.C., or Wall Street. It is the tens of millions of men and women in offices, factories and fields across America who go to work every day trying to do right by their families. When our middle class grows, our whole economy grows.” – John Edwards

In America today, families are working harder and struggling to get by, while powerful special interests in Washington are doing better than ever. Income inequality is at its greatest level since 1928. But the number of Washington lobbyists has tripled to 36,000 since 1996, more than 60 for every member of Congress. Our tax code is the perfect example of the Two Americas – one for the wealthiest Americans and Washington insiders, and the other for everyone else. John Edwards believes that wholesale changes are needed to put our economy and our tax system back in line with our values. [Pew, 2007; Saez, 2007; SOPR, 2006]

Three New Tax Breaks to Strengthen the Middle Class

While the tax code favors wealth over work, regular families struggle to save and pay for necessities like child care. Only 27 percent of households within 20 years of retirement have adequate retirement savings. Child care costs more than a rent for a family with two children. A single worker at the poverty line pays more than $800 in federal income and payroll taxes. [EPI, 2006; NACCRRA, 2006; CBPP, 2006]

Edwards will overhaul the tax code with new tax breaks to strengthen the middle-class pillars of saving, work, and family:

Savings: A new “Get Ahead” tax credit to match up to $500 a year in savings for families earning up to $75,000 – that could be used for retirement, college education, buying a home, investing in a small business or during a financial or medical emergency, and new “Work Bonds” to offer additional targeted savings incentives for low-income families.
Families: Expand the Child Care Credit to pay up to 50 percent of child and dependent care expenses up to $5,000 and make it partially refundable, and allow stay-at-home parents to help pay for child care for newborn infants.
Work: Triple the Earned Income Tax Credit for single adults and cut the marriage penalty.

Reverse the “War On Work”

Nothing better reflects the problems with our tax code than the lower tax rates for capital gains. As Warren Buffett says, there is something wrong when he pays taxes at a lower rate than his secretary.

As president, Edwards will:

Raise the tax rate on capital gains to 28 percent for the most fortunate taxpayers – taxing the investment income of the wealthiest Americans similarly to the wages of the middle class.

Repeal the Bush tax cuts for the highest-income households and keep the tax on very large estates (above $4 million for couples).

Declare war on offshore tax havens by cracking down on tax shelter promoters, cooperating with allies to fight tax havens, and closing the “tax gap” by improving IRS customer service, simplifying tax filing, auditing more large corporations and high-income individuals and requiring more third-party reporting.

Close unfair loopholes like the tax breaks for hedge funds and private equity fund managers and unlimited executive pensions.

Dover, N.H. - Responding to Giuliani on Capital Gains Taxes - Jul 28, 2007

Reducing The Burden Of Paying Taxes With “Form 1"E-Cast: Overhaul The Tax Filing System

In this podcast, Edwards speaks about his plan to have the IRS calculate millions of families’ tax bills—mailing them a “Form 1.”

“Hard-working families who pay their taxes shouldn’t have to pay tax preparers too. With ‘Form 1,’ there is only one thing you have to do - sign and return it.” -- John Edwards

The American tax code is unnecessarily complicated and full of shelters and loopholes that favor wealth over work. While corporations and wealthy families can hire expensive accountants and lawyers, ordinary families face unnecessary obstacles in calculating and paying their taxes. It takes seven hours to complete even the simplest tax form, the 1040EZ. One-third of EZ filers pay tax preparers. Meanwhile, for tens of millions of taxpayers who file simple returns, the Internal Revenue Service already has all the data it needs (such as household size, wages, and interest income) to calculate the tax or refund due. [IRS, 2005; GAO, 2006]

In the first of a series of Saturday Morning E-Casts, John Edwards describes his plan to overhaul the tax filing system. Under his plan, the IRS will calculate millions of families’ tax bills and mail it to them on a new “Form 1.” Like a credit card bill, families could verify and recalculate it or simply sign and return it. Form 1 is part of Edwards’ vision of a tax code that is simpler and fairer and rewards work.

Completing Tax Forms for Up to 50 Million Americans: For as many as 50 million Americans, the IRS gets all the information it needs to calculate their taxes from employers and financial institutions. Under Edwards’ plan, the IRS will calculate these taxpayers’ bill and mail them a completed return. Families would only need to do one thing with Form 1: sign and return it. Families with more information - such as charitable contributions, capital gains, or other more complex transactions - will not be able to use Form 1. Form 1 would save taxpayers an estimated 225 millions hours a year. [Goolsbee, 2006; Gale and Holtzblatt, 1997; Treasury, 2003; GAO, 1996]

Making Filing Easier for All Taxpayers: Each year, both taxpayers and the IRS get information returns from employers and financial institutions (on W-2 and 1099 forms) showing wages, interest and mortgage interest paid. Taxpayers who lose a piece of paper and do not correctly report their income faces audit, additional taxes, interest, and penalties. Under Edwards’ plan, the IRS will mail the information it has collected to taxpayers, eliminating the need to gather duplicative documents. The IRS will also provide a free interactive web site for all taxpayers that eliminates the need for data entry, calculators, and tax tables. Of course, families could also choose to continue calculating their taxes as they do today.

Helping Low-Income Workers: The Earned Income Tax Credit (EITC) lifts more than 4 million people in working families out of poverty every year. However, due to its complexity, as many as one out of four eligible families fail to receive it. By informing families of their eligibility for the credit, Form 1 will significantly increase the EITC participation rate. [CBPP, 2006; Brookings, 2006]

Taking on Special Interests: Form 1 could save families $2 billion in tax preparer fees, and the tax preparation industry has fought similar efforts. In California, one company spent over $500,000 in a failed effort to derail the successful ReadyReturn program. At the federal level, the IRS agreed with the tax software industry to limit free online filing to low-income taxpayers. Its barebones “Free File” program for low-income taxpayers has a history of hidden fees and bait-and-switch advertisements. [Goolsbee, 2006; L.A. Times, 5/5/2006 and 12/5/2006; Bankman, 2005; Cal. Franchise Tax Board, 2005; Accounting Today, 1/8/2007]