Category Archives: tax code reform

A Herculean Task/Tax Code Reforms

Sundays for me have become “politics day”. From 10 am until 2 pm on one political talk show after another reporters and politicians hash out the issues from the previous week, and, sometimes they discuss what will happen with key issues in the weeks to come.

On Sunday, January 6, 2013, one of the topics under discussion was the tax code. I thought someone (I don’t remember who) said that the tax code was currently about 7,300 pages long. “Wow,” I thought. So I went to the trusty search engines of the internet and I asked for clarification. How many pages are there in the tax code? The answer was quite astounding. First of all the articles say that no one knows the exact number of pages in the tax code.

According to an article by Gordon Howie entitled How Long Is It?” (the U.S. tax code):

“U.S. Representative J.C. Watts, Jr. (R-OK) “The heart of IRS abuse lies in the existing tax code. Most of the folks who work for the IRS are good people just trying to do their job, but they are caught in a bad, overextended tax system. At 3,458 pages, twice the length of the Bible, it’s impossible for the average taxpayer to know, understand, and accurately apply its provisions.

Senator Jim DeMint (R-SC) “The federal tax code with its 44,000 pages, 5.5 million words, and 721 different forms is a patchwork maze of complexity and a testament to confusion over common sense.”

By the way, if you go to the US Government Printing Office ( www.gpo.gov), you can order a complete set of Title 26 of the US Code of Federal Regulations (that’s the part written by the IRS), all twenty volumes of it, at the bargain price of $974, shipping included.

According to the US Government Printing Office, it’s 13,458 pages in total. The full text of Title 26 of the United States Code (the part written by Congress–available for an additional $179) is a mere 3,387 printed pages, bringing the adjusted gross page count to 16,845.

Yikes!

No wonder we have politicians suggesting a “flat tax” or a “9-9-9 tax”. A tax code as complex as ours is insane. If no one knows the exact number of pages in the code then I doubt if anyone knows all the ins and outs of the contents of the U.S. tax code.

We need to hire a group of tax experts, give them a quiet conference room and have them tackle some of the following projects:

·         A comprehensive index of topics covered in the tax code

·         An organized condensation of tax laws and codes

·         Judgments about which tax codes, loopholes, exemptions to overturn

·         Devise a tax code that will fit in 1,000 pages give or take a few

·         Offer a bonus if they succeed.

Seriously, it looks like our tax code presents many opportunities for reform and simplification. How can we expect Congress to do this task? A panel of experts is needed but can we afford such a panel? Do you think anyone would volunteer?

The following graphic shows a tax code that in 2009 exceeds 70,000 pages.

This author makes the following suggestion:

”This illustration, of course, feeds the frenzy to revamp or scrap and replace the current tax code.

But before we even get to that place — which is a long, long way down the road — I’d like to try another approach. Make Congress leave the tax code alone for a while.

It’s the constant tinkering by Representatives and Senators that causes the most tax trouble. At a Ways and Means hearing on tax reformlast year, committee chairman Dave Camp (R-Mich.) noted that there were nearly 4,500 tax law changes in the last decade.

Worse, lawmakers’ alterations usually are done in the most arcane ways to meet desired budget numbers or political philosophies or the wishes of major campaign contributors.

And all too often these changes are retroactive so we taxpayers and our tax and financial advisers have no way to effectively plan.

So give it a rest, guys and gals, and let’s see exactly what we have, unintended consequences included.

Then we can look at where we really need to make some tax code changes”

Cleaning up the tax code sounds comparable to the task Hercules faces when he had to clean the Augean stables. Hold your nose and shovel.

This is the view from the cheap seats.


Republican Tax Code Reforms

It appears that Robert Pozen’s suggestions for changes to the tax code are not as bipartisan as he would like to believe (see my post from Friday, July 13, 2012). According to an article on Newsmax.com from July 11, 2012 by Jim Meyers and John Bachman the Republicans now favor the Ryan Tax Plan which is every bit as harsh and minimalist as Mr. Ryan’s character seems to be.
Rep. Jeb Hensarling talked to Newsmax and what he said is reported in an article called Hensarling to Newsmax: Obamacare Repeal the ‘Will of the People’. For the most part he repeated all the usual arguments against the Affordable Health Act, however, near the end of the article he sums up the current Republican position on the tax code.
“On tax reform, he tells Newsmax: ‘Ultimately Republicans want to pass a fair, flatter, simpler, more competitive tax code. We put it into our budget, a two-tiered flat tax system at 10 and 25 percent, bringing down the corporate rate. We have the single highest corporate tax rate in the world, which helps shift jobs overseas and makes us uncompetitive.
We want to clear out all the loopholes, all the exclusions, broaden the base and lower the rates. “
I would say that this represents an increase in taxes for many middle class Americans and even low-income Americans since I assume things like the Earned Income Tax Credit would disappear and deductions for mortgages and educational costs and every loophole or exclusion, not just the ones that give money back to people who don’t need it. What will happen to Social Security income? Will we pay taxes on the whole thing? Will the formula that allows us to count about half of our Social Security income as taxable disappear? This plan looks like the middle class and lower income Americans will have a greater rise in their taxes than that experienced by higher income Americans. Will wealthy Americans still be able to move money to non-taxable off-shore accounts? What will happen to special interest provisions like the one for NASCAR or the tackle-box industry or Eskimo whaling captains?
Once again, Republicans are the party that protects millionaires and corporations, sets them up as better than other Americans because they have the financial wherewithal to keep the nation’s economy afloat. It ignores the fact that these fortunate people (after all, corporations are people) are in the mood to hold on to their wealth rather than invest it in an America that is floundering to find its footing in a transitional global economy. (Or are they waiting for the other shoe to drop?) Yikes!

A Bipartisan Concern – The Tax Code

It sounds like there is one area that both Democrats and Republicans talk about as important and that area is revising the tax code. Everyone seems to agree that the tax code is too complex. What is not clear is if revising the tax code in the ways it really needs to be revised constitutes an increase in taxes. Since Republicans are in thrall to Grover Norquist, they are not allowed to change taxes in any way that Mr Norquist defines as a tax increase. They signed a pledge, which should be unconstitutional, but which apparently is not.
I know very little about the tax code; it is not my area of expertise. But I do know how to read so I asked the internet to tell me what parts of the tax code should be changed. Hardly anyone is very specific in their recommendations. But the internet did lead me to Robert Pozen, a senior lecturer at Harvard Business School and a senior fellow at the Brookings Institution. He wrote an op-ed in The Washington Post on the subject last year on July 19, 2011 entitled A debt plan Republicans can support.
He says, “On the corporate side, Congress could raise $150 billion over 10 years by adopting four measures:
First, Congress should eliminate the $60 billion tax subsidy for producing ethanol.
Second, changing corporate accounting standards from LIFO (last in, first out) to FIFO (first in, first out) would raise $70 billion over 10 years.
Third, Congress could raise $17 billion by taxing ‘carried interest’ earned by investment professionals at ordinary income rates (35%) rather than capital gains rates (15%).
Fourth, Congress should eliminate the allowance for accelerated depreciation of certain capital expenses such as corporate jets. Although this is a rhetorical favorite of Democrats, it would raise only $3 billion over 10 years.
On the individual side, Congress could raise substantial revenue by imposing several limits on the mortgage interest deduction (2nd and additional houses, vacation property, home equity loans, restricting such deductions to mortgages of as much as $500,000 per couple instead of $1million). This could raise $150 billion in revenue over the next decade.
To raise the final $100 billion of revenue, Congress could modify the approach to insurance premiums in the recently passed health care legislation. That legislation imposed a ‘Cadillac’ tax effective 2018 on any insurance company offering health care plans with premiums of more than $27,000 per year. Instead of the ‘Cadillac’ tax Congress could cap the currently unlimited exclusion for employer based health care premiums at $23,000 for families (and $8,500 for singles), effective 2013. For example, a family with health care premiums of $24,000 per year would pay income tax only on the last $1,000.
This cap would have a narrow impact; approximately 80 percent of workers would not be affected. Yet the cap would help constrain health care expenditures by limiting the tax subsidies for the most expensive plans.
I will continue to explore the internet for other suggestion re tax code reforms, but in my preliminary search I didn’t see too many people offering specifics.
Of course when you have one party (the GOP) whose stated goal is to stop the other party (Democrats) from accomplishing anything for as long as our current President is in the White House, then there is no longer any room to discuss tax code revisions or any other economic strategies for that matter. This stance alone should convince every voter that it would not be wise to elect any Republicans in the 2012 election. The reforms to the tax code are something that could be tackled right now to help us avoid that “fiscal cliff” we will hear about almost daily at least until the election and maybe beyond. Will it happen? I doubt it.

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Here is what the Republican in my backyard had to say:

“Ok. I read this and it isn’t horrible but you are missing the point. The point isn’t a lack of funding, a need for increased taxes. The problem is the out of control, and increasing spending. Obama’s spending nearly as much as spent for WWII. Further, recent legislation is going to increase the deficit. If all the tax increases proposed here passed, it still won’t touch the deficit. What is coming, is a huge increase in middle class taxes. There is no free ride and the majority of the wealth regardless of what Democrats think, is in the hands of the middle class.”
(He knows I don’t agree with the way Republicans do the math relative to Obama’s spending, but he insists the Republicans did the math correctly.)