The Next Tax Reform Should Build on Sound Tax Policy and Simplify the Tax Code

The Republican Study Committee (RSC), a group of US House Republicans, recently released two policy blueprints: the 2026 Budget and Reconciliation 2.0 Framework that prescribe taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. and spending options to boost “affordability and prosperity” for Americans. These blueprints offer some simple, pro-growth options, but include ideas that would add to tax complexity.

For the next round of tax reform, lawmakers should consider policies that simplify the tax code, encourage growth, and are fiscally responsible.

The federal government estimates that taxpayer compliance comprises 73 percent of Americans’ total out-of-pocket costs complying with federal regulations. Despite Internal Revenue Service (IRS) efforts to encourage electronic filing, increasing tax complexity swamps those efforts, contributing to a rising burden on taxpayers.

RSC’s budget highlights tax policy from the 2025 reconciliation bill that made strides to simplify the tax code, primarily by making the expiring individual provisions in the Tax Cuts and Jobs Act (TCJA) permanent and permanently restoring expiring and expired incentives for business investment. The individual reforms ensured taxpayers did not see a $4.5 trillion automatic tax hike when the individual TCJA changes expired as previously scheduled.

The expensing of business equipment and research and development expenses are permanent policy, offering much-needed stability and simplicity for businesses. Previous RSC budgets have called for extending a similar treatment of investment in structures that we estimate would grow GDP by 1.3 percent while costing $256 billion over ten years.

However, the latest RSC budget calls for extending other provisions in the 2025 reconciliation law that added complexity to the tax code. No tax on tips, overtime, and auto loans, as well as the additional standard deductionThe standard deduction reduces a taxpayer’s taxable income by a set amount determined by the government. Taxpayers who take the standard deduction cannot also itemize their deductions; it serves as an alternative. for seniors, will reduce taxes for some taxpayers but at the cost of substantial rules and regulations to prevent abuse. Not to mention, these specific tax cuts are set to expire after 2028.

Overall, the 2025 reconciliation bill increased the tax code’s complexity. But it also sets the table for further simplification with the expiration of these targeted provisions.

The US offers over a dozen tax-neutral savings accounts for retirement, education, and healthcare, each with their own rules and eligibility requirements. Low-income individuals struggle to utilize the variety of tax-neutral saving accounts, according to surveys on retirement and healthcare accounts. According to IRS data from 2018, 42 percent of tax filers overall contributed to a defined contribution plan, a 401(k) or IRA, but less than 10 percent of those with wage income of $10,000 or less, and about 20 percent of those with wages between $15,000 and $20,000, did so.

The RSC budget calls for creating universal savings accounts (USAs), tax-neutral savings accounts that can be used for any purpose. As opposed to other savings accounts, USAs are a simple way for Americans to save without penalties or restrictions. Accounts similar to USAs in Canada and the United Kingdom see widespread use, especially among lower-income people, as a valuable tool for saving and investing.

By contrast, the RSC Reconciliation 2.0 Framework creates four tax-advantaged savings accounts—for housing, healthcare, and worker training. Rather than adding new accounts with additional rules, consolidating these proposed accounts and some existing duplicative accounts into a USA could raise revenue while easing the compliance burden.

Last year, Americans spent 7.1 billion hours complying with the tax code, equivalent to 3.6 million full-time workers, or nearly the population of Los Angeles. This tax season is shaping up to be no different.

The tax code is ripe for simplification, especially as complicated and targeted provisions expire in 2028. Before trying to add new provisions to the mix, policymakers should carefully look at our current tax code and seek ways to consolidate and simplify incentives.