The Tax Foundation has released its latest flagship publication, Options for Reforming America’s Tax Code 3.0, providing a rigorous economic, distributional, and revenue analysis of 86 distinct structural adjustments to the federal tax system. The new volume covers a wide array of potential modifications, detailing both approaches that would streamline the labyrinthine federal tax code and those that would introduce further complexity.

At the center of the organization’s foundational principles for sound public finance is simplicity: the core idea that tax codes should be straightforward enough for everyday taxpayers to navigate without undue burden, while remaining manageable for government agencies to administer and enforce. Despite occasional bipartisan efforts to slash red tape, the federal tax code has ballooned in complexity over recent decades. Proposals for new targeted tax increases, carveouts, and specialized savings vehicles continually threaten to compound these administrative challenges.

To demonstrate how policymakers might reverse this trajectory, the new volume outlines several high-impact options designed to significantly simplify the tax system, ease compliance for businesses and individuals alike, and reduce the administrative load carried by the Internal Revenue Service.

Eliminating Alternative Minimum Taxes for Individuals and Corporations

Among the most prominent structural adjustments highlighted in the publication are the simultaneous repeal of the corporate Alternative Minimum Tax and the elimination of the individual Alternative Minimum Tax. Alternative minimum taxes function as parallel systems running alongside the regular tax code, establishing a regulatory floor on the amount of tax an individual or business must pay. In practice, these frameworks frequently demand that taxpayers compute their ultimate liability twice—first under standard income tax rules, and then a second time under the rigid parameters of the alternative minimum structure.

Both the individual and corporate alternative minimum taxes emerged from recurring political anxieties across the 1960s, 1980s, and more recently the 2020s. Lawmakers and voters have historically expressed frustration when average tax rates for certain high-earning households and prominent corporations fall below top marginal rates. However, public finance experts note that low average tax rates do not inherently signal a policy flaw. Pro-growth reforms such as full expensing for capital assets, for instance, frequently generate low effective tax rates for businesses in the short term that smooth out over a multiyear horizon. These pro-growth adjustments represent a temporary and intentional feature of a dynamic economy rather than a systemic bug.

Conversely, when Congress enacts targeted tax preferences, credits, and deductions that drive down average tax rates, lawmakers often react by constructing alternative minimum taxes rather than directly reforming the underlying preferences. The individual alternative minimum tax has persisted in various forms since 1969. Although subsequent legislative packages, including the landmark Tax Cuts and Jobs Act and the One Big Beautiful Bill Act, successfully restricted its reach, it remains exceptionally burdensome for the shrinking minority of taxpayers it ensnares. The Congressional Budget Office has projected that fewer than 600,000 taxpayers will pay the individual alternative minimum tax, representing a mere 0.3 percent of all submitted returns. Yet, for those individuals caught in its net, the friction is severe; the National Taxpayer Advocate once observed that the alternative minimum tax nearly doubles the total paperwork and financial burden of filing a federal income tax return.

The corporate alternative minimum tax follows a similarly turbulent legislative history. Created by Congress in 1986, it was subsequently dismantled under the Tax Cuts and Jobs Act starting in 2018. It was later resurrected in a modified form under the 2022 Inflation Reduction Act. Survey data compiled by the Tax Executives Institute indicates that this newly resurrected corporate alternative minimum tax has inflicted significant compliance headaches on U.S. companies while generating relatively modest federal revenue.

By eliminating both the individual and corporate alternative minimum taxes, lawmakers could entirely dismantle these complex, parallel administrative regimes. Policymakers concerned about the resulting revenue impact could readily offset the gap by directly addressing the specific deductions and credits that generate low average tax rates in the first place, ensuring a cleaner and more transparent tax architecture.

Streamlining Savings Vehicles Through Universal Savings Accounts

The modern U.S. tax code features an array of tax-neutral savings vehicles, each operating under distinct and often conflicting rules. While most Americans are broadly familiar with popular retirement instruments such as traditional and Roth 401(k) plans or individual retirement accounts, the broader ecosystem of tax-advantaged accounts extends considerably further. Over recent years, federal lawmakers from both political parties have routinely proposed adding even more specialized accounts tailored for narrow public policy goals, such as funding first-time home purchases, supporting lifelong skills training, and covering disaster mitigation or recovery expenses.

Maintaining a proliferation of specialized savings accounts compounds the administrative paperwork, asset tracking, and ongoing maintenance required of everyday taxpayers. Furthermore, it elevates administrative overhead for both the IRS and the Treasury Department while directly violating the tax policy principle of neutrality. By singling out certain preferred types of saving for tax-advantaged status, the government effectively leaves other forms of saving subject to higher, discriminatory effective tax rates.

To resolve this complexity, the new reform guide models the creation of Roth-style universal savings accounts. Under this framework, individuals would be permitted to contribute a designated post-tax amount annually—modeled at $10,200 for 2027 and indexed to inflation in subsequent years—into a single universal account. Unused contribution room could be conveniently carried forward into future tax years. Investment earnings within these accounts would compound completely tax-free, and account holders could execute withdrawals at any time and for any reason without incurring penalties or additional taxation, with withdrawn amounts subsequently added back to their available contribution room.

To achieve comprehensive simplification, Congress could eventually phase out legacy savings structures like health savings accounts, flexible spending accounts, and specialized education savings plans, though lawmakers would need to carefully navigate the transition period.

Reforming the Earned Income Tax Credit and Child Tax Credit

The federal tax code currently provides substantial financial support to families through the child tax credit, which allows parents to claim up to $2,200 per child as of 2026. This credit gradually phases out for single filers earning more than $200,000 annually and joint filers with incomes exceeding $400,000. Simultaneously, low-income parents and low-income childless workers can access the earned income tax credit, a mechanism whose rules shift dramatically depending on filing status and the exact number of qualifying children.

The earned income tax credit was originally conceived to reward and encourage work, a function it continues to serve. However, it has increasingly evolved into a de facto secondary child credit. The maximum credit available to a childless worker remains relatively modest, whereas the maximum credit for a taxpayer with one or more children is substantially higher.

The disparate phase-in and phaseout rules governing the earned income tax credit, combined with intricate qualifying child definitions, generate substantial friction for taxpayers and administrative complications for the IRS. Compounding this confusion is a lack of statutory alignment between major family provisions: under current law, children remain eligible for the earned income tax credit through age 18—or age 23 for full-time students—while age eligibility for the child tax credit cuts off strictly at age 16.

To alleviate these overlapping burdens, the reform guide details an option to restructure both provisions so that one operates strictly as a work-focused credit while the other functions exclusively as a child-focused credit. Such a reform would harmonize eligibility rules and drastically reduce compliance errors.

Enacting Full Expensing for All Capital Investment

Under an ideal cash flow tax system, American businesses would be permitted to deduct all ordinary business expenses from gross revenues in the exact year those expenses are incurred. However, the existing U.S. tax code falls far short of this ideal. While certain operational outlays, such as employee wages, basic machinery, and everyday equipment, can typically be written off immediately, long-term investments in commercial buildings and other heavy structures must be slowly depreciated across many decades.

The intricate rules governing depreciation and asset amortization schedules generate extensive accounting work, costly tax planning, and prolonged administrative oversight by the IRS. More importantly, these delayed deductions artificially inflate the after-tax cost of investing in foundational capital assets. This structural penalty discourages private investment, ultimately dampening long-term capital formation, worker productivity, and wage growth.

The reform options examine the economic impact of permitting full and immediate deductions for all capital investments, including physical structures. Under a permanent full-expensing regime, businesses would no longer need to navigate complicated depreciation schedules or track multiyear asset lifespans. Every eligible business expenditure would yield an immediate, dollar-for-dollar deduction, eliminating a major historical bias against heavy capital investment.

Integrating Corporate and Individual Income Taxes

While the nation’s largest enterprises typically organize as C corporations, the vast majority of American businesses operate as pass-through entities, including sole proprietorships, partnerships, S corporations, and limited liability companies. Pass-through businesses do not face taxation at the entity level; instead, operational profits pass directly through to the individual owners, who pay taxes on those earnings through their personal income tax returns.

C corporations operate under an entirely different framework, facing taxation both at the corporate entity level and subsequently at the shareholder level. Consequently, corporate income is subjected to double taxation: once when the enterprise pays the statutory corporate income tax rate, and a second time when individual investors realize capital gains or receive taxable dividend distributions.

Maintaining two distinct business tax systems within the same economy forces companies to navigate vastly different regulatory regimes. It also distorts economic decision-making, frequently driving business owners to select their legal structure based primarily on complex tax calculations rather than operational efficiency.

The reform options address the systemic double taxation of C corporation income by permitting corporations to deduct the dividends distributed to their shareholders. By allowing a dividend deduction, policymakers could align the treatment of C corporations and pass-through entities so that business income faces only a single layer of taxation. This adjustment would significantly reduce economic distortions across the business sector and bring policymakers closer to a fully integrated tax architecture built around a single, uniform set of rules and rates.