Why simplifying the tax code is a pipe dream

April 18, 2013 — Leave a comment

“In fact, the best thing we could do on taxes for all Americans is to simplify the individual tax code. This will be a tough job, but members of both parties have expressed an interest in doing this, and I am prepared to join them.”

— President Barack Obama

“Our tax code is four million words long. Add to that the regulations, explanations, annotations, and more, and there are 74,000 pages… our tax code is a headache for families and workers, and it’s a nightmare for small business owners. That’s why Republicans want to fix it.”

— Sen. Minority Leader Mitch McConnell (R-Ky.)

From the President to Grover Norquist, from the Tea Party to the Green Party, one hears “simplify the tax code” over and over and over again.  Except no one is really willing to do it, not even the public.

stack-of-papersYes, the tax code is extremely complicated.  Tax compliance costs (time and money spent on preparing services) for businesses and individuals range upwards of $400 billion, about 1/7 of what the government collects in revenue each year.  The entire Internal Revenue Code is about 74,000 pages and contains over 4 million words.  There are over one thousand downloadable forms from the IRS website.  Want to do your own taxes?  Have fun browsing  the 106 page instruction booklet – and that’s just for your Form 1040.

The arguments for tax simplification couldn’t be clearer, and that’s why every politician touts that he/she fights for it.  But let’s be real.  Every tax expenditure (exemptions, deductions and credits) has very high support.  Claiming to eliminate a few or all of them is a meaningless political stunt designed to avoid confrontations with the constituencies supporting tax expenditures.  That’s why Paul Ryan won’t name a single loophole he’s willing to close to bridge the $10 trillion gap in revenues his proposed new income tax rates would create.  It’s why the President, who says he wants to simplify the tax code, has only added to its complexity through new rules in the healthcare law, the fiscal cliff deal and the stimulus package, to name a few.

But what about we, the people?  Bruce Bartlett, in an article for the New York Times, sums it up nicely:

“Historically, however, voters have been unwilling to support meaningful simplification efforts and happily put up with complexity if it saves them in taxes. They seem always to fear that ‘simplification’ is some sort of code word for raising their taxes while reducing someone else’s.”

Simply put, every loophole has a lobbyist, and every tax expenditure has a beneficiary.  Simplifying the tax code in one sweeping overhaul seems entirely unrealistic, especially given congress’ current polarization and the level of outside influence in politics.

Tell us what you think in the comments section below, and be sure to check out our “related articles” section for more on this subject:

JDKatz: Attorney's At Law

JDKatz, P.C. is a full-service law firm focused on tax law and estate planning. We are dedicated to minimizing your existing liability and risks while providing valuable tax planning to streamline your tax issues in the future. Please call us at 301-913-2948 to schedule an appointment to meet with one of our trusted attorneys.

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