Within a few weeks, tens of millions of Americans will have filed with the IRS their 2013 income tax return. Millions more will have elected to place the April 15 filing deadline on extension until August. For individual U.S. taxpayers, the hours and dollars expended to meet this voluntary reporting are in the tens of billions.
The statistics do not include the dollars and time spent by companies, foreign and domestic and nonprofit organizations in meeting their tax compliance obligations. And let’s not exclude filings that must be accomplished to meet the various state tax compliance requirements.
At about this time each year we hear from Congress that tax reform is indeed necessary and will be forthcoming -- just like it has been coming each and every time it is proposed -- it does not happen.
The problem I have is that in approximately 40 plus years as a CPA, I have witnessed dozens of tax reforms, not one has ever reformed the tax laws we currently must contend with --- the reforms have only made the U.S. Tax Code more complicated, burdensome and in many Code Sections, inequitable.
In the early 1960s the U.S. Tax Code was about the size of today’s Bennington County telephone book. According to a recent article in the Wall Street Journal, in 2014 the book that details the Code is at least four times the size of the Bible and growing. And this does not include the books on IRS Regulations, which provides for the interpretation of the Code nor does it include the various case law from U.S. Federal Courts.
In 1913, when the Income Tax Code was adopted, there were only a few pages of rules and regulations. Over the last 100 years it has morphed into a monster. U.S. Presidents and Congress, at one time or another took up the idea of real tax reform -- only to fail miserably, resulting in making matters even more complicated and costly -- resulting in a perpetual annuity for accountants, lawyers and lobbyists.
Take for example the recent attempt to eliminate a deduction, the payment by a taxpayer to charitable organization -- an army of lobbyists from colleges, hospitals and various and sundry charitable organizations descended on Capitol Hill and were successful in having the proposed legislation dropped -- and rightfully so.
The charitable sector is not the only interest group that has a proprietary interest in any possible tax reform legislation. Several years ago, the environmental and clean energy interest groups lobbied Congress to pass the home appliance energy savings tax credit. A tax credit was adopted for those who purchased such appliances as well as the tax credit, which was provided to the manufacturers of such appliances.
The list of special credits and deductions can go on and on -- each has its own special interest group. It makes no difference whether they are for individuals, estates, companies, utilities, nonprofits or even countries -- once tax credits or deductions are incorporated into the Tax Code, it is near impossible to have them removed -- thus the monster we have today.
Thomson Reuters publishes tax law changes and analysis under the auspices of the Research Institute of America. Below are just several publications for tax professionals created between 2008 and 2012. In parentheses is the number of pages contained within each of the publications:
1) Emergency Economic Stabilization, Energy, Extenders and AMT Relief Acts of 2008 (1,512)
2) The Worker, Retiree, and Employer Recovery Act of 2008 (664)
3) Tax and Benefits Provisions of the American Recovery and Reinvestment Act of 2009 (1,308)
4) Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (2,211)
5) Tax and Benefits Provisions of the 2010 Health Care Act as Amended by the 2010 Health Care Reconciliation Act (960)
6) The American Taxpayer Relief Act of 2012 (1,915)
I wonder if the 536 Members of Congress had reviewed in detail the above, before they were incorporated into the U.S. Tax Code? Those who earn their livelihood providing tax advice or lobbying the Congress would be foolish to support legislation for a simpler income tax system -- consultants’ bread is buttered by having complex regulations --for those in the tax consulting profession it is no different -- complexity means dollars.
In 1913, the income tax law had been adopted (by way of 16th Amendment to the Constitution) to raise funds to finance the U.S. Government. There was no other purpose.
When it comes to tax reform, administrations and Congress, whether Republican or Democrat, can banter about as much as they wish. True reform will never happen until these two institutions have the courage to overcome the social, economic, political and business engineering that our current tax system has been used for. Until such time, the U.S. Tax Laws will only become more complex, inequitable and dreadfully costly to comply with.
Don Keelan writes a bi-weekly column and lives in Arlington.