December 2009

The HAPPY Act? I’d be Happier with Tax Reform

By Amy K. Frantz

The HAPPY Act is a piece of little-known legislation that has been introduced in the U.S. House of Representatives. Will it make you happy?  It might, if you are a pet owner.  The HAPPY Act is an acronym for the “Humanity and Pets Partnered Through the Years (HAPPY) Act.”

The HAPPY Act (H.R. 3501) “amends the Internal Revenue Code to allow a tax deduction, up to $3,500 per year, for pet care expenses (including veterinary care).”[1]  This legislation was introduced in July by Michigan Representative Thaddeus McCotter, a Republican, and is co-sponsored by two House Democrats, Representative Steve Cohen of Tennessee and Representative Jared Polis of Colorado.

Surely this legislation would make many people happy. The bill itself states that “according to the 2007-2008 National Pet Owners Survey, 63 percent of United States households own a pet.”[2]  There certainly would be no lack of expenses to deduct.  “Pet owners spent $43.2 billion on their animals in 2008, according to the American Pet Products Association. This year, despite the recession, they are expected to spend 5 percent more…[and] spending on vet visits is expected to increase 10 percent, to $12.2 billion.”[3]

Despite the fact that the legislation has bipartisan support, would likely have the backing of a majority of our nation’s population, and our Commander in Chief is a pet owner, it seems unlikely with only three declared backers that this bill will be landing on President Obama’s desk awaiting his signature any time soon.

As a pet owner and a taxpayer, I would certainly take advantage of this deduction were the HAPPY Act to become law. However, rather than adding another tax deduction with its own little constituency of support, I would prefer that our lawmakers devote their efforts to simplifying the tax code, not expanding it.

Our federal income tax code is already so complicated that taxpayers have to spend great amounts of time and money just to pay their taxes each year. According to National Taxpayers Union’s latest study on federal income tax complexity, “taxpayers using any of the 1040 tax form series will spend an average of 26.4 hours and $209 completing their returns for the most current tax year, up from 25.4 hours and $185 four years ago.”[4]

Instead of adding additional deductions to our tax code, Congress should consider legislation to flatten our income tax code or to eliminate it altogether. A flat-rate income tax would eliminate the complexity of our current tax code. Imagine how simple it would be to multiply your income for the year by one single tax rate and pay that amount in income taxes, with a minimal amount of deductions or exemptions. Taxpayers would no longer need 100+ pages of instructions or a Certified Public Accountant to comply with the tax code.

A national retail sales tax system would repeal rather than simplify the federal personal and corporate income taxes, and replace those taxes with a tax on the final sales of goods and services to consumers.  The Fair Tax Act, introduced by Republican Congressman John Linder of Georgia, goes even further and repeals not only the personal and corporate income taxes, but also the payroll taxes for Social Security and Medicare, self-employment taxes, capital gains taxes, and estate and gift taxes.  To replace all of these taxes, the Fair Tax Act imposes a consumption tax of 23 percent on all new goods and services at the point of final purchase. Business-to-business transactions and the purchase of used products are not subject to the sales tax.  Iowa’s Congressman Steve King is one of 58 cosponsors of the Fair Tax Act.[5]

While the HAPPY Act may make pet owners happier by granting an additional tax deduction, taxpayers in general would be happier if it were not so complex and time-consuming to pay our federal income taxes. Reforming our federal tax code by adopting a flat tax or a national retail sales tax system would make taxpayers happier than a cat with a mouse or a dog with a bone! 

Amy K. Frantz is Research Vice-President at Public Interest Institute.

The views expressed herein are those of the author and not necessarily those of Public Interest Institute or Tax Education Foundation.  They are brought to you in the interest of a better-informed citizenry.

[1] Library of Congress, THOMAS Bill Search, H.R. 3501, CRS Summary <http://thomas.loc.gov/cgi-bin/bdquery/z?d111:HR03501:@@@D&summ2=m&> (November 16, 2009).

[2] Library of Congress, THOMAS Bill Search, H.R. 3501 <http://thomas.loc.gov/cgi-bin/query/D?c111:1:./temp/~c11162LfKW::> (November 16, 2009).

[3] Stacy Rapacon, “Pets, vets and bills that don’t make you howl,” The Washington Post, November 1, 2009 <http://www.washingtonpost.com/wp-dyn/content/article/2009/10/30/AR2009103004205.html> (November 16, 2009).

[4] Natasha Altamirano and Peter J. Sepp, “Study from Nation’s Largest Taxpayer Group Shows Individuals, Corps., Spending Nearly $300 Billion on Tax Compliance,” National Taxpayers Union press release, April 14, 2009 <http://www.ntu.org/main/press_release.php?PressID=1099&org_name=NTU> (November 18, 2009).

[5] Library of Congress, THOMAS Bill Search, H.R. 25, Cosponsors <http://www.thomas.gov/cgi-bin/bdquery/z?d111:HR00025:@@@P> (November 18, 2009).