Commentary: Congress Issues Report for Simplifying Tax System

Article excerpt

On April 25th, the Congressional Joint Committee on Taxation released a major report on simplification of the federal tax system. The report includes more than 1,300 pages of analysis of the current Internal Revenue Code and recommendations about how to streamline it.

Did you know that the code consists of some 1,395,000 words? That the Internal Revenue Service has issued almost 20,000 pages of regulations containing more than 8 million words? That, to help taxpayers with their 1999 returns, the IRS published some 649 forms, schedules, and separate instructions; 159 worksheets; and 340 other publications. It's all in the joint committee report, and it is sure to be a best seller among tax policy wonks like me.

The three-volume report is entitled, Study of the Overall State of the Federal Tax System and Recommendations for Simplification. A 32-page executive summary is already available at the committee's Web site - http://www.house.gov/jct/ - and the full report should soon follow.

The report was drafted by the very talented professional staff of the Joint Committee on Taxation. Volume I of the report is A Study of the Overall State of the Federal Tax System. The study outlines the operation of the current federal tax system, discusses the causes and effects of complexity, and explains some of the efforts of foreign countries to simplify their tax laws.

Among the sources of complexity that the report identifies, four stand out:

* A lack of clarity and readability of the law.

* The use of the federal tax system to advance social and economic policies.

* Increased complexity in the economy.

* The interaction of federal tax laws with state laws, other federal laws and standards, the laws of foreign countries, and tax treaties.

The effects of complexity include:

* Decreased levels of voluntary compliance.

* Increased costs for taxpayers.

* Reduced perceptions of fairness in the federal tax system.

* Increased difficulties in the administration of tax laws.

Volume II of the report includes a number of specific recommendations about how to reduce the complexity of the current federal tax system. Of particular note, the report recommends eliminating the individual alternative minimum tax. This provision currently requires millions of taxpayers to compute their tax liability twice - once under the normal income tax and then again under the alternative minimum tax. But the Joint Committee staff believes that the alternative minimum tax no longer serves the purposes for which it was intended.

The report also recommends getting rid of most of the phaseouts that curtail personal exemptions, child tax credits, and deductions for individual retirement account contributions when a taxpayer's income exceeds certain arbitrary income limits. …