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The next few weeks and months are shaping up to be an exciting time for advocates of tax reform. To be sure, the details of a tax reform bill have been shifting almost daily. But that is hardly surprising. If tax reform is to pass, a lot of key players with differing priorities and goals ultimately will have to agree on a unified approach. And if an agreement is eventually reached, the daily gyrations will be quickly forgotten.
There are, of course, many goals of tax reform. On a policy level, these include achieving greater economic efficiency, fairness, and international competitiveness. As an IRS official, I generally don’t take a position on these broad policy issues.
Instead, my focus has been – and remains – on advocating for a simpler tax code to reduce taxpayer burden. I certainly hope policymakers will take steps to simplify the code and reduce burden as part of their efforts.
From where I sit, tax code simplification is critical. I recently wrote that if I had to distill everything I’ve learned as the National Taxpayer Advocate into one sentence, it would be this: “The root of all evil in the tax system is the complexity of the Internal Revenue Code.” In fact, since 2001, I have four times designated the complexity of the tax code as the #1 most serious problem facing taxpayers and three times made tax simplification my #1 legislative recommendation in my Annual Reports to Congress.
If my concerns about code complexity sound hyperbolic, you should see what I see. Code complexity is terrible for taxpayers, terrible for the IRS, and terrible for tax compliance. Honest taxpayers regularly get tripped up by complicated rules and IRS procedures. The IRS has to deal with so many unique, nearly “one off” cases that it makes more than its fair share of mistakes – which, of course, harm taxpayers. Taxpayers trying to game the system can often do so by hiding behind complex provisions that are very difficult to audit. And complexity obscures how the tax laws operate, making them appear arbitrary and capricious, which increases taxpayers’ distrust and undermines compliance.
Consider the following:
I have long believed, and continue to believe, that comprehensive tax simplification is achievable by following the model of the landmark Tax Reform Act of 1986. It’s true that asking taxpayers to give up tax breaks from which they currently benefit will prompt resistance. But if policymakers pair substantial reductions in tax expenditures with substantial reductions in tax rates, and maintain current tax-burden levels by income decile, U.S. taxpayers may well appreciate that their tax burden on average won’t change much – and they will actually end up better off because they will save time and money on compliance costs. That approach prevailed 30 years ago, and despite some significant differences, it could prevail again today.
But even if policymakers decide comprehensive simplification is too heavy of a lift, there are many steps that can be taken to simplify the tax code in smaller bites. For example, Congress could:
These proposals are intended to address some of the most significant taxpayer challenges we see, but there are many other proposals for policymakers to consider. The Bush and Obama administrations both produced reports with many good simplification proposals, as have the House Ways and Means and Senate Finance committees and others. In my 2010 Annual Report to Congress, I announced that TAS was establishing an electronic mailbox to which taxpayers could submit suggestions regarding tax reform. In particular, I asked taxpayers to address two questions: (i) what tax breaks would you be willing to give up if you knew other taxpayers would also be giving up their tax breaks and the end result would be a simpler tax system and (ii) what provisions of the current tax code are especially burdensome or seem particularly unfair? We have received more than 5,500 suggestions. You can submit suggestions and read many of the tax reform suggestions we have already received here.
U.S. taxpayers have been struggling under the weight of the current tax code for far too long. There is no shortage of good ideas. Now is the time for the administration and Congress to seize the moment and finally, this year, deliver much-needed relief to our nation’s taxpayers. I continue to be hopeful that we will achieve simplification, if for no other reason than that we must.
The views expressed in this blog are solely those of the National Taxpayer Advocate. The National Taxpayer Advocate presents an independent taxpayer perspective that does not necessarily reflect the position of the IRS, the Treasury Department, or the Office of Management and Budget.
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