Thursday, January 10, 2013


National Taxpayer Advocate Nina E. Olson has released her 2012 annual report to the idiots in Congress.

Here is some of what Nina discussed, from the IRS press release (highlights are mine) - identifying the need for tax reform as the overriding priority in tax administration.

The National Taxpayer Advocate’s annual report designates the complexity of the tax code as the #1 most serious problem facing taxpayers and recommends that Congress take significant steps to simplify it. ‘The existing tax code makes compliance difficult, requiring taxpayers to devote excessive time to preparing and filing their returns,’ Olson wrote. ‘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.’

The report states that the tax code imposes a ‘significant, even unconscionable, burden on taxpayers.’ Since 2001, Congress has made nearly 5,000 changes to the tax code, an average of more than one a day, and the number of words in the code appears to have reached nearly four million.

To reduce taxpayer burden and enhance public confidence in the integrity of the tax system, the report urges Congress to greatly simplify the tax code. In general, this means Congress should reassess the need for existing income exclusions, exemptions, deductions and credits (generally known as tax expenditures). For fiscal year (FY) 2013, the Joint Committee on Taxation has projected that tax expenditures will come to about $1.09 trillion, while individual income tax revenue is projected to be about $1.36 trillion. To put these numbers in perspective, if Congress were to eliminate all tax expenditures, straight math indicates it could cut individual income tax rates by 44 percent and still generate the same amount of revenue it collects under current rules.

The report recommends that Congress approach tax reform in a manner similar to zero-based budgeting. The starting assumption would be that all tax expenditures would be eliminated. A tax break would be retained only if a compelling case can be made that the benefits of that break outweigh the complexity burden it creates. ‘In performing this analysis,’ Olson said in releasing the report, ‘we should look at each provision in the code and ask questions like: Does this government incentive make sense?; If it does, is it better administered through the tax code or as a direct spending program?; However well intentioned, is it doing what it was intended to do?; and If yes, can it be administered without imposing unreasonable burdens on taxpayers or the IRS?. At the same time, Congress can separately consider how much revenue it wants to raise, and it can then marry up our optimally designed tax system with our revenue needs by setting tax rates accordingly.’

Nina's report also expressed concern that the IRS is not adequately funded and that the IRS is not doing enough to assist victims of tax-related identity theft and return preparer fraud.

Click here to download the Executive Summary of Nina’s report.

This is not the first time that Nina has cited the complexity of the Tax Code as a serious problem.  She hits the nail on the head this year by putting it on the top of her list.

Her starting assumption for tax reform is what I have been saying for the past few years now, and her questions to be asked before adding a tax expenditure to the Code are spot on – especially “is it better administered through the tax code or as a direct spending program?”.  Also as I have been saying for years, when applied to a majority of the current tax expenditures the answer would be a definite “it is better administered as a direct spending program”!

Right on, Nina!    


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