Statement of Richard M. Lipton on the Subject of Tax Simplification
April 26, 2001

Mr. Chairman and Members of the Committee:

My name is Richard M. Lipton. I appear before you today in my capacity as Chair of the American Bar Association Section of Taxation. This testimony is presented on behalf of the Section of Taxation. It has not been approved by the House of Delegates or the Board of Governors of the American Bar Association and, accordingly, should not be construed as representing the policy of the Association except as otherwise indicated.

The Section of Taxation appreciates the opportunity to appear before the Committee today to discuss simplification. On behalf of the Section, I want to thank the Chairman and the Members of this Committee for their focus on eliminating complexity in the Internal Revenue Code (the "Code").

The Section of Taxation is comprised of approximately 20,000 tax lawyers. As the largest and broadest based professional organization of tax lawyers in the country, we serve as the national representative of the legal profession with respect to the tax system and act as "Counsel to the Tax System." We advise individuals, trusts and estates, small businesses, exempt organizations and major national and multi-national corporations. We serve as attorneys in law firms, as in-house counsel, and as advisors in other, multidisciplinary practices. Many of the Section’s members have served on the Congressional tax-writing committees, in the Treasury Department and the Internal Revenue Service, and the Tax Division of the Department of Justice.

I am joined by my colleagues from the American Institute of Certified Public Accountants and the Tax Executives Institute. This by itself is not unusual. These organizations often appear on the same panel before the tax writing committees of Congress. What is unusual, however, is that we appear here today to speak to you with one voice.

The ABA and its Section of Taxation have long been forceful advocates for simplification of the Internal Revenue Code. The ABA recently designated tax simplification as one of its top legislative priorities. In resolutions proposed by the Section of Taxation and passed by the full ABA in 1976 and 1985, the ABA went on record urging tax law simplicity, a broad tax base and lower tax rates. We have reiterated this position in testimony before the House Ways and Means and Senate Finance Committees on numerous occasions, including testimony delivered in each of the last two years. On February 25, 2000, the Section of Taxation, the AICPA Tax Division, and Tax Executives Institute released identical simplification proposals. (See Appendix I for the joint letter to Members of the Tax Writing Committees and Ten Ways to Simplify the Tax Code.) We will also devote a significant portion of our upcoming May Meeting to discussion of the simplification proposals included in the anticipated report of the staff of the Joint Committee on Taxation, and we expect to provide additional comments on that report in the future.

In recent years, the Code has become more and more complex, as Congress and various administrations have sought to address difficult issues, target various tax incentives and raise revenue without explicit rate increases. As the complexity of the Code has increased, so has the complexity of the regulations that the Internal Revenue Service (the "IRS") and Treasury have issued interpreting the Code. Moreover, the sheer volume of tax law changes has made learning and understanding these new provisions difficult for taxpayers, tax practitioners and IRS personnel alike.

The volume of changes, especially recent changes affecting average taxpayers, has created the impression of instability and unmanageable tax complexity. This takes a tremendous toll on taxpayer confidence. Our tax system relies heavily on the willingness of the average taxpayer voluntarily to comply with his or her tax obligations. Members of the Section of Taxation can attest to the widespread disaffection among taxpayers with the current Code. The willingness and ability of taxpayers to keep up with the pace and complexity of changes is now under serious stress.

We do not claim to have all the answers. The Section of Taxation will continue to point out opportunities to achieve simplification whenever possible, including several ideas that we will discuss later in this testimony. However, it is also necessary that we point out that simplification necessitates hard choices and a willingness to embrace proposals that are often dull and without passionate political constituencies. Simplification also requires that easy, politically popular, proposals be avoided if they would add significant new complexity. Simplification—and preventing greater complexity—may not garner political capital or headlines, but it is crucial.