“Six years ago the Wall Street Journal editorialized about “Lucky Duckies,” Americans with zero income tax liability after they have taken all of their deductions and credits. 

The term stuck.  Today, lucky duckies are a major consideration in the debate over tax reform.  As policymakers struggle to advance ideas to make our tax system more fair, they encounter the millions of Americans who are completely unaffected by our tax system.  In 2005, about 44 million income tax filers had zero federal income tax liability.  Some of them even claimed refunds above and beyond the total amount of their taxes paid, called refundable tax credits.

Simply put, the income tax system has relatively few stakeholders.  Approximately one in three tax filers is liable for zero income tax.  Changes in the tax code are unlikely to affect their bottom-line tax liability.

For those who do pay income taxes, the system is crushingly complex.  The Internal Revenue Service is a colossal government agency, with over 100,000 employees.  The tax code weighs in at 66,000 pages, the equivalent of about 44 Merriam-Webster’s dictionaries.  The code and its innumerable forms are so difficult to understand that the average American cannot fill out his or her own tax return – they require the assistance of a professional.  Yet, professional tax preparers need not worry – the exhaustive intricacies of our tax system aren’t going away any time soon.

There is no quick fix to our complicated system.

We should make a strong case for simplification and reform, especially considering key facts about our economy and the U.S. tax code as it is written now.

 
Our national economy needs a boost, and nothing helps inject energy into the marketplace like putting a little more of taxpayers’ earnings back into their pockets.  Likewise, simplification would help taxpayers plan their family budgets from year to year without the uncertainty of dramatically rising and falling tax rates set by policymakers trying to “manage” the economy.

Re-igniting our economy means helping employers as well as paycheck earners.  Members of both political parties agree that the corporate tax rate – basically a tax on doing business – should be lowered from its current 35 percent to 30 or even 25 percent.  That relief would help American companies compete both at home and abroad, as well as lifting pressures on workers’ wages.  Likewise, measures that accelerate depreciation schedules would give all American businesses, especially manufacturers and small businesses, a rejuvenating opportunity to grow and to add jobs.

For American families, the Alternative Minimum Tax is an unworkable long-term tax policy that waits at the threshold of middle-class taxpayers’ doors each April, threatening 20, 50 or even 100 percent income tax increases.  It must be fixed.

Finally, the next two years will decide the fate of the 2002 tax cuts – substantial reforms to the Death Tax, the capital gains tax, and the income tax rates.  If this last provision is allowed to expire, every American who pays income taxes will owe more to Uncle Sam starting in 2011, when the lowest 10 percent tax bracket would be eliminated and raised to 15 percent. 

To implement change, we must realize that the creeping tax code potentially affects every American who brings home a paycheck or lives off a fixed income in retirement.  Even for Americans who don’t pay income taxes today, the tax man may soon come calling.  Lucky duckies can only stay lucky for so long.”