IRS Taxpayer Advocate to Congress: The Time for Tax Reform is Now
In its annual report to Congress Wednesday, the National Taxpayer Advocate stated unequivocally that "the most serious problem facing taxpayers - and the IRS - is the complexity of the Internal Revenue Code". The report goes on to list the sources of the tax code's complexity, the consequences of such complexity, and obstacles to tax-code simplification.
According to the report, the tax code's massive compliance burden is glaring evidence of the need for tax reform. The code's length, the constant changes made to it (4,428 in the past decade - an average of more than one a day), and the difficulty of complying with it correctly creates a serious lack of transparency. This leads to confusion, benefits only those who can afford expensive tax advice while burdening all others, and fosters cynicism among many who are forced to comply with it.
After pointing out abundant evidence of this lack of transparency and the unfairness of our tax code, the report asks the simple question: "Since there is general sentiment that the system is broken, why isn't it being fixed?" One potential explanation is, to quote the report:
There is a widespread belief that the influence of “special interests” is the biggest roadblock to comprehensive tax reform. There is no doubt that many provisions in the tax code benefit narrow groups of taxpayers, including several described above. But the dirty little secret is that the largest special interests are us – the vast majority of U.S. taxpayers. Virtually all of us benefit from certain exclusions from income, deductions from income, or tax credits (collectively known as “tax expenditures”).
The report lists the most expensive tax expenditures (e.g. exclusions for employee contributions to health care, exclusions for contributions to retirement savings, the mortgage interest deduction, the earned-income tax credit) and argues that collectively they benefit a large portion of taxpayers and promote generally desirable objectives, like home-ownership, charitable giving, health-care coverage, and saving for retirement.
The threat of losing these tax breaks raises widespread and immediate concern among the public, even though the loss could be accompanied by lower rates across the board. Compared to the perceived threat of losing valued tax breaks or credits, the general promise of lower rates seems "speculative and distant" to many people. Thus, the report stresses that taxpayers will need substantial assurance that lower rates will indeed accompany any loss in their tax breaks.
CRFB has been very vocal about the need for fundamental tax reform as a key part of efforts to put the country on a sustainable fiscal course. We need a tax system that is broader-based, simpler, and more efficient. Click here to read CRFB's paper on Tax Expenditures as part of our Let's Get Specific series.