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Friday, January 21, 2011

How to simplify the tax law

Recently, two students noted to me separately that perhaps the only route to simplify the tax law would be to require that all members of Congress prepare their own return without using a preparer or software - just the IRS instructions and publications. I saw today on a Tax Foundation blog entry (1/13/11) that Governor Pawlenty of Minnesota has suggested the same.

I agree. I've had this same thought many times - particularly after the passage of the Tax Reform Act of 1986, which was touted, not only as a lowering of the tax rates, but as simplification. Ever have to fill out a Form 8582 Passive Activity Loss Limitation form and its worksheets? Form 6251 for AMT? I was with EY after the '86 Act passed and spent a lot of time on these topics including writing partner/K-1 instructions explaining to partners how to report the passive activity losses showing up on their K-1s.

And, of course, the law has only gotten more complex subsequent to the Tax Reform Act of 1986.

I do think members of Congress would focus more on simplification approaches and not add so many tax breaks if they had to fill out their tax return by hand.

What do you think is the most complicated rule or form? Do you think members of Congress should be required to complete their return by hand?


Peter Reilly said...

Ideas like that are amusing, but the reality is that there is an inherent complexity to taxing income. Things will only be simple by moving to some sort of gross receipts tax.

Peter Reilly said...

Also simplicity is overrated. Whatever else it is the tax system is a white collar jobs program.

Professor Nellen said...

Thanks for the comments Peter. I think the inherent challenges of measuring income is what leads some people to want a national sales tax (aka the "fair tax").