The complexity of the current tax system imposes heavy compliance burdens on individuals and businesses while stretching enforcement agencies thin. To address these inefficiencies, the Tax Foundation outlined a series of structural proposals in its Options for Reforming America’s Tax Code 3.0 guide. These recommendations focus on establishing a fairer, more transparent framework by eliminating duplicate tax structures, streamlining savings options, and harmonizing corporate rules.
Here are five core tax reforms designed to reduce administrative friction and encourage broader economic growth.
1. Eliminate Parallel Alternative Minimum Taxes
Alternative Minimum Taxes (AMTs) function as a shadow tax system. They force eligible taxpayers to calculate their tax liability under two distinct sets of rules, effectively doubling the compliance workload.
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The Individual AMT: Originally introduced to ensure high earners paid a base level of tax, subsequent legislative updates have significantly narrowed its scope. Despite affecting fewer taxpayers today, the preparation process remains unnecessarily burdensome for those required to compute it.
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The Corporate AMT: Re-established under recent legislation, the corporate minimum tax introduces intricate accounting requirements that yield limited net revenue relative to the compliance cost incurred by businesses.
The Solution: Repealing both individual and corporate AMTs removes redundant taxation systems. Concerns over revenue loss can instead be addressed by directly reforming targeted credits and deductions rather than layering on secondary tax systems.
2. Consolidate Tax-Favored Accounts into Universal Savings Accounts
The tax code currently maintains a fragmented array of specialized savings vehicles—ranging from 401(k)s, IRAs, and HSAs to 529 education plans and flexible spending accounts. Each carries unique eligibility thresholds, withdrawal constraints, and tax treatments.
┌─────────────────────────────────────────────────────────────┐
│ SAVINGS SYSTEM COMPARISON │
├─────────────────┬───────────────────────────────────────────┤
│ Current System │ Multiple siloed accounts (Education, │
│ │ Health, Retirement) with complex rules. │
├─────────────────┼───────────────────────────────────────────┤
│ Universal │ Single Roth-style account for all needs │
│ Account (USA) │ with flexible, penalty-free withdrawals. │
└─────────────────┴───────────────────────────────────────────┘
The Solution: Transitioning toward Universal Savings Accounts (USAs) allows individuals to contribute post-tax dollars into a single account where earnings grow tax-free. Removing strict withdrawal restrictions simplifies financial planning, reduces administrative oversight for the IRS, and treats all form of household saving neutrally.
3. Uncouple Family Support from Work Incentives
Under current policy, the Child Tax Credit (CTC) and the Earned Income Tax Credit (EITC) overlap in purpose, leading to confusing eligibility criteria and administrative errors.
The Solution: Restructuring these policies into two distinct programs—a standardized child credit designed purely for family support, and a simplified Earned Income Tax Credit focused strictly on supplementing wages—streamlines filing requirements and clarifies program objectives.
4. Permit Full Expensing for All Capital Investments
Standard accounting rules require businesses to write off capital assets—such as buildings and major infrastructure—over extended depreciation schedules spanning decades. This delays cost recovery and increases tax-planning overhead.
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Immediate Deductions: Allowing businesses to deduct the full cost of all capital investments in the year purchases occur simplifies bookkeeping.
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Pro-Growth Impact: Full expensing lowers the upfront financial barrier to capital investments, spurring business expansion and equipment modernization.
5. Address Double Taxation via a Corporate Dividend Deduction
Unlike pass-through businesses (such as S corporations and LLCs) where earnings are taxed once at the owner level, C corporations face double taxation: first at the corporate level, and again when shareholders pay taxes on dividends or capital gains.
Key Takeaway: Deducting dividends paid at the corporate level establishes a single layer of taxation across all business models, eliminating tax-driven decisions regarding corporate structure.
Moving Toward Structural Tax Simplicity
A simpler tax framework reduces the time spent on preparation, lowers administrative expenses for revenue agencies, and minimizes economic distortions. Prioritizing clear, consistent rules over targeted carve-outs provides a clearer path forward for both taxpayers and lawmakers.