Simplifying the tax code no easy task

One of the most popular pledges of this year’s presidential campaign is the promise to simplify the federal tax code.

In fact, one candidate even promised to boil down the 5,296 pages of the Internal Revenue Code to three pages. 

That’s a tall order.  

Instead of glorifying the shortness of the code, let’s consider what “good” tax law is. 

The American Institute of Certified Public Accountants tax policy concept statement delineates 10 guiding principles of good tax policy: equity and fairness; certainty; convenience of payment; economy of collection; simplicity; neutrality; economic growth and efficiency; transparency and visibility; minimum tax gap; and appropriate government revenues 

Skeptics argue that accountants have a vested interest in a tax code only they can understand, but accountants themselves are calling for tax simplification. In a recent AICPA document, they spell out these goals: make simplification the No. 1 priority; seek the simplest approaches to the desired tax policy or revenue objectives; minimize compliance burdens, in terms of both time and money; reduce the frequency of tax law changes, even if change will produce long-term simplification; use consistent concepts and definitions; consider the administrative burdens imposed by legislation and administrative guidance; and avoid limited applicability.  

While presidential candidates may promise a simplified tax code, in truth, only Congress has the power to write the law and simplify the process. The president can ask/beg/borrow/horse trade/persuade all he — or she — wants, but the legislation still comes from Congress. The president just gets to say yea or nay at the tail end.

In fact, Congress also directs IRS activities via authorizing statutes. So when House and Senate members rail at the IRS, it is important to note that the IRS is only struggling to do what Congress asked it to do, without adequate funds to do the job. Just try calling the IRS some time; they answer the phone only 37 percent of the time, according to the agency’s taxpayer advocate. 

So how do we get a simplified tax code?  

In theory, Congress could slough off over 100 years of tax law development and just say: “Send in 30 percent of what you made.”

But questions immediately arise: Send to whom? When? All at once? Collected where I work? What does “what I made” mean? Is it 30 percent of gross sales? Sales after expenses? Which expenses? What if I want to expense a Mercedes truck instead of a Ford? Should I expense it all in one year or depreciate it over several years? Can I expense the wages paid to undocumented workers? 

Then we have the special interests and lobbyists. In our post-Citizens United v. Federal Election Commission world where the U.S. Supreme Court gave a green light for corporations and unions to spend unlimited sums to influence elections, finding the will on Capitol Hill to do away with the myriad of tax breaks and write-offs is no easy task.

My fellow accountants often joke that tax law is the largest social programming document on the planet. The Internal Revenue Code gives Americans special treatment if they buy a house, have children or invest in the latest technology. Congress may be reluctant to give up its ability to influence social and economic behaviors and draft a tax code that simply brings in enough money to cover its spending.

Indeed, it’s easy to see why the U.S. has tens of thousands of pages of tax law after more than 100 years. I don’t think Congress can reasonably be expected to turn the tide and, clearly, a president is barely in the mix of tax policy influencers. 

The U.S. government has cumulatively spent $18 trillion more than what it has taken in. Congress is spending like the proverbial drunken sailor who is three sheets to the wind — making a three-sheet tax code a virtual pipe dream. 

Edward R. Jenkins is an instructor of accounting at Penn State and a consultant with Boyer & Ritter LLC Certified Public Accountants and Consultants. He can be reached at 234-6919 or ejenkins@cpabr.com