According to the former IRS National Taxpayer Advocate, W. Val
Oveson, the complexity of the tax law “continues to be the most
serious and burdensome problem facing America’s taxpayers.” Over
the years, the Internal Revenue Code has developed into a web of
maddening complexity manifested by vague or highly technical requirements,
exceptions, limitations, and special rules. In addition, many of
these provisions must be applied in tandem with other complicated
provisions that even the most sophisticated of tax advisers can
find difficult, if not impossible, to decipher. As the complexity
of the Code has increased, so has the complexity of the regulations
that the IRS and Treasury have issued interpreting the Code. The
sheer volume of tax law changes has made learning and understanding
new provisions difficult for taxpayers, tax practitioners and Service
personnel alike. Some of the rules are so complex that even the
IRS has trouble administering them.
Since our current tax system is confusing and cumbersome, many
taxpayers have difficulty preparing their tax returns. This heavy
burden of complexity affects the entire spectrum of taxpayers, from
low-income individuals to multi-billion dollar corporations. It
also impedes the continuing efforts of the Internal Revenue Service
to better administer and enforce the nation’s tax laws. Implementation
of simplification measures would significantly reduce complexity
for large numbers of both individual and business taxpayers, and
have the concomitant effect of making the tax laws easier to administer.
During the 106th Congress, Democrats and Republicans alike introduced
numerous legislative proposals designed to simplify the tax code.
Yet despite widespread support for tax simplification, such legislation
was not enacted. The issue of tax simplification also received considerable
attention during the last presidential campaign and President George
W. Bush has been on record several times as being in favor of the
issue. Tax issues continue to be at the forefront of the debate
on Capitol Hill and in the Administration.
Current
Status
In the wake of the attacks on the World Trade Center and the Pentagon
on September 11, 2001, there was some discussion on Capitol Hill
of an economic stimulus package that would have included tax simplification
measures. However, negotiations stalled in the Senate and the package
never materialized.
On June 7, 2001, the Economic Growth and Tax Relief Reconciliation
Act, H.R. 1836, was signed into law as P.L. 107-16. The new law
includes two important simplifying measures that have been advocated
by the ABA for several years. These are the repeal of two “phaseout”
provisions known as “PEP and Pease,” which gradually eliminate personal
exemptions and itemized deductions as a taxpayer’s income increases.
The repeal will take effect in 2006. The ABA has argued that these
provisions create unnecessary complexity for the sole reason of
hiding what is in reality a higher rate structure than is apparent
from the rate tables.
Several additional tax simplification bills have also been introduced
during the 107th Congress, but have received no action to date.
On January 3, 2001, Rep. Phil English (R-PA) introduced the Simplified
USA Tax Act of 2001, H.R. 86, which is designed to restructure and
replace the income tax system of the United States to meet national
priorities and other purposes. Rep. Jim DeMint (R-SC) introduced
the National Advisory Commission on Tax Reform and Simplification
Act of 2001, H.R. 335, on January 31, 2001. H.R. 335 would establish
a commission to review and make recommendations to Congress on the
reform and simplification of the Internal Revenue Code of 1986.
In the Senate, Sen. Byron Dorgan (D-ND) introduced S. 551, the Fair
and Simple Shortcut Tax Plan, on March 15, 2001. Among other things,
S. 551 would amend the Internal Revenue Code of 1986 to simplify
the individual income tax by providing an election for eligible
individuals to only be subject to a 15 percent tax on wage income
with a tax return free filing system. On July 17, 2001, Rep. Richard
E. Neal (D-MA) introduced H.R. 2529, the Individual Tax Simplification
Act of 2001, which would amend the Internal Revenue Code of 1986
to provide a revenue-neutral simplification of the individual income
tax. On July 18, 2002, Rep. Rob Portman (R-NJ) introduced H.R. 5166,
the Tax Simplification Act of 2002, comprehensive tax legislation
that would simplify the Internal Revenue Code of 1986. The White
House budget proposal for FY 2003 also includes language on developing
a tax simplification plan.
The Treasury Department is working on a comprehensive report on
tax simplification, and the staff of the Joint Committee on Taxation
(JCT), in April 2001, published a comprehensive study of the tax
system, including recommendations for simplification (JCS-3-01).
The JCT study responded to a mandate in the Internal Revenue Service
Restructuring and Reform Act of 1998. The study identifies, as some
of the consequences of complexity, decreased voluntary compliance,
increased taxpayer cost, reduced perceptions of fairness, and increased
difficulties in the administration of tax laws. The study’s recommendations
represent a painstaking analysis of tax rules for such sources of
complexity as the existence of multiple provisions with similar
objectives; the nature of required math calculations; record keeping
requirements; interference with planning; lack of consistency in
definitions of similar terms; and lack of readability. The resulting
recommendations are a potential roadmap for tax simplification.
On December 4, 2001, the ABA’s Tax Section co-hosted a conference
on Capitol Hill that discussed the tax simplification recommendations
included in the JCT’s report, and in May 2002, the ABA’s Tax Section
hosted a joint tax simplification task force meeting.
The House Ways and Means Committee held a hearing on tax simplification
on July 17, 2001. In April 2001, the ABA Section of Taxation testified
at a Senate Finance Committee hearing on tax simplification. In
addition, the ABA Section of Taxation has been on record encouraging
the IRS Commissioner, Charles O. Rossotti, to take tax simplification
into consideration as the IRS administers the tax laws.
ABA
Policy
The American Bar Association supports the simplification of the
tax laws to the maximum extent consistent with basic equity, efficiency,
and the need for revenue, so that such laws can be easily understood
and complied with by the taxpayers and fairly and consistently administered
and enforced by the Treasury Department.
Key Points
- Tax simplification
is a critical component of an effective federal tax system. It
is a crucial issue that affects low-income taxpayers as well as
large corporations.
- The Internal Revenue
Code covers over 2300 pages and is steadily increasing. As the
complexity of the Code has increased, so has the complexity of
the regulations that the IRS and Treasury have issued interpreting
the Code.
- The sheer volume
of tax law changes has made learning and understanding new provisions
difficult for taxpayers, tax practitioners and Service personnel
alike. Compliance with the tax code is seriously undermined when
taxpayers do not understand the tax law.
- According to a
1999 poll conducted by the Associated Press, 66% of respondents
said that the federal tax system was too complicated and 56% of
respondents said that they pay someone to complete their income
tax returns.
ABA Links
Other Links
Last Updated:
November 11, 2002
Background
· Current Status · ABA
Policy · Key Points · Links
American Bar Association