Internal Revenue Service Commissioner Doug Shulman told students that the Tax Code has grown far too complex in recent years.
In a speech Monday at Harvard’s Kennedy School of Government, Shulman noted that there have been 15,000 changes to the Tax Code since 1986, including 3,000 legislative changes since just the year 2000.
Lawmakers are preparing further changes to the Tax Code as Congress has been convening a series of hearings in both the Senate and the House on tax reform for both businesses and individuals.
“Most taxpayers want simplicity,” said Shulman. “They want to pay what they owe, understand what tax benefits they are entitled to, and not get tripped up by the system. However, today’s Tax Code is anything but simple. It is so complex that it makes it hard for taxpayers to plan and make out an annual budget as there can be unpredictable tax bill swings from year to year. One year you might be eligible to claim a tax credit reducing what you owe. But the following year, the tax credit will expire, or there may be a change in your personal situation that will knock you out of the eligibility box.”
Shulman pointed to the growing complexity of tax rules that had started out simple, such as claiming a child as a dependent, but have now grown thorny with various benefits, such as the Earned Income Tax Credit, the Child and Dependent Care Credit, and the deduction for dependent care expenses.
“Perhaps the most telling indicator of taxpayer confusion over the code’s complexity is that today, 90 percent of individual taxpayers pay for professional tax preparation or tax software to prepare their tax returns,” he noted.
Shulman acknowledged that targeted tax benefits could be desirable, such as those used during the recent economic downturn to help people and businesses cope with the recession.
“Unfortunately, we’ve ended up with a complex set of overlapping incentives that have built up over the years,” he said. “We have expenditures of every kind and flavor, often leaving the taxpayer confused.”
The Joint Committee on Taxation found that between 1980 and 2010, the number of tax expenditures in the code grew from slightly less than 100 to almost 250, he noted.
“My central message this evening is this,” he said. “Making the Tax Code less complex is the single most important thing that could be done to improve taxpayer service and boost compliance.”
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