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As Congressman Dave Camp recently stated, “The code is 10 times the size of the Bible with none of the good news.”
February 2013 marks the 100th anniversary of the ratification of the U.S. Constitution’s 16th Amendment, authorizing Congress to levy a federal income tax. At the time, it was a fairly straightforward system. You had all the information needed to report income and claim deductions. It worked well until the 1960s, when the process slowly became more complex. For this, we can thank members of Congress who have increasingly resorted to adding new provisions to the Tax Code to further their economic and social agendas by providing tax incentives or penalties designed to incentivize or discourage various investments or behavior.
Our forefathers would roll over in their graves if they knew that Congress averages adding one new provision to the Tax Code every day. National Taxpayer Advocate Nina Olson estimates it takes 6.1 billion hours for all taxpayers (including corporations) to prepare and file their tax returns. Only 10 percent of us file without any help.
It’s nearly impossible for us to dig out of our increasingly complex Tax Code. The average taxpayer stands no chance of comprehending it. This complexity has effectively shifted the tax burden disproportionately to middle-class taxpayers who can’t afford the services of tax attorneys and CPAs to help them through the tax thicket and lower their effective tax rates. The “progressive” tax system is anything but progressive.
The corporate income tax is horribly inefficient and out of date for a global economy. And the parallel tax system —alternative minimum tax, or AMT—was poorly drafted from the beginning, and imposes 80 percent of the burden for the AMT on the middle and upper middle class. The very rich, who were the original targets of the AMT, end up only paying about 13.4 percent of the nation’s AMT tax bill.
We have more tax lawyers and CPAs than we need … and this is coming from a tax attorney. We urgently need a drastic overhaul of the Tax Code. The last major overhaul of the Tax Code was a bipartisan endeavor in 1986. It was a degree of statesmanship we need again. It’s taxing, but worth the effort.
Charlie Egerton is one of the founding shareholders of the law firm of Dean, Mead, Egerton, Bloodworth, Capouano & Bozarth PA in Orlando. He is the former chair of the American Bar Association’s Section of Taxation, the nation’s largest organization of tax lawyers. He may be reached at firstname.lastname@example.org.