November 25, 2014

Taxpayer Advocate Laments Cost of Complexity

  • The nation's fiscal future depends on the balance between the spending in the federal budget and the revenues flowing into the treasury. Tax policy...

National Taxpayer Advocate Nina E. Olson bolsters the case for tax reform in her annual report to Congress, calling the complexity of the U.S. tax code – which now weighs in at nearly four million words -- a “significant, even unconscionable burden” on Americans.

In addition to frustrating taxpayers, the complexity of the code costs the government revenue in a variety of ways.

“The existing tax code makes compliance difficult, requiring taxpayers to devote excessive time to preparing and filing their returns,” Olson writes. “It obscures comprehension, leaving many taxpayers unaware how their taxes are computed and what rate of tax they pay; it facilitates tax avoidance by enabling sophisticated taxpayers to reduce their tax liabilities and provides criminals with opportunities to commit tax fraud; and it undermines trust in the system by creating an impression that many taxpayers are not compliant, thereby reducing the incentives that honest taxpayers feel to comply.”

Olson’s report, released last week, urges Congress to greatly simplify the tax code, largely by reassessing the need for many “tax expenditures.“ These exclusions, exemptions, deductions and credits are projected by the Joint Committee on Taxation to total $1.09 trillion in the current fiscal year. In comparison, individual income tax revenue is expected to total $1.36 trillion.

The Concord Coalition has long supported a significant reduction in tax expenditures. This could simplify the tax system, make the economy more efficient and help reduce federal deficits.