A Better Tax Code Is Possible If We Demand It

It's tax season, everyone's favorite time of year — right? Well, based on how many are on TikTok complaining about their lack of a refund this year, it seems a lot of people are unhappy with our current tax situation. And what is not to hate? Taxes are complicated, confusing, and do not always mean you get that big refund check you were expecting.

A few years ago, lots of folks were enjoying a major reduction in their taxes. Thanks to the American Rescue Plan, passed in 2021, there were a bunch of temporary tax credits and other changes to help the average person keep more of their money as we were still in the depth of the Covid-19 pandemic. This included a big expansion of the Child Tax Credit and the Earned Income Tax Credit. But those changes were temporary and have now expired.

After that taste of what a better tax system could look like, it's clear we need an overhaul now. The last major changes to the tax code were created with the Tax Cuts and Jobs Act in 2017 — which feels like a whole world away from now. While this provision did include quite a few measures to lessen the tax burden on lower and middle-income taxpayers, a lot of those adjustments were minimal and not permanent. Meanwhile, the corporate tax code was the major focus of the law, and those changes are more durable.

If we really wanted a people-focused tax code, there are a few things we could implement right now.

First, we could expand the Free and Fair Program, which allows taxpayers to file quickly and easily, directly through the IRS. This would cut out tax preparation companies, which are unnecessary for a large portion of the public and frequently advertise free filing, but find ways to charge customers anyway. This program is especially important for young and lower-income taxpayers who are unfamiliar with the complicated system and are targeted by for-profit filing companies that charge them to receive their tax benefits. This program is currently being piloted in some states but is being threatened by legislators who want to defund the IRS.

Second, the Earned Income Tax Credit (EITC) is one of the most important tools we have to fight poverty through the tax code; however, it is not available to most taxpayers under the age of 25. This arbitrary cut-off means that young workers under the age of 25, with qualifying income from wages, are ineligible to collect the EITC. We know that young people are missing out on money. In a report from my company, Young Invincibles, we found that, on average, since 2010, there have been ten million taxpayers between the ages of 18-24 with qualifying incomes for the EITC.These young adults are facing a tough financial reality, with the average worker under 25 finding only $2,000 per year in leftover income after necessary expenditures — compared to $23,000 in leftover income for adults ages 25-34. We should not be taxing these young adults into poverty — but instead expanding the EITC to provide relief.

Lastly, the Child Tax Credit (CTC) is another powerful tool for fighting poverty — this time aimed at helping families with kids. Thanks to the American Rescue Plan in 2021, the CTC was temporarily increased to allow more benefits per child but also changed to be paid out throughout the year, rather than with one lump sum in a tax refund. This brief expansion of the credit benefited 61 million children and resulted in a roughly 30% reduction in children in poverty. An analysis of census data found that 91% of the low-income families receiving the benefits used the credits to pay for basic necessities and education costs.

Luckily, there has been some movement on improving and expanding the Child Tax Credit again. In the House of Representatives, Democrats and Republicans came together to draft a bi-partisan bill with major tax reform bill called the Tax Relief for American Families and Working Americans Act. Expanding the Child Tax Credit as proposed would lead to an estimated 400,000 fewer children living in poverty. The bipartisan tax package has already passed the House and is awaiting a vote in the Senate.

A better tax code is possible, but it does require those who want it to come together and demand it. Legislators often pit these kinds of people-focused reforms against corporate tax cuts — so business leaders have an outsized influence in these kinds of negotiations. Business leaders who want the tax code to prioritize the needs of families and low-income workers should say so often and loudly. We must demand more from our elected leaders whether you are a CEO or a young worker shut out of the tax credits you need.

Tax Day is April 15, but any day is a good day to raise your voice and make noise for a people-focused tax code.