The panel held public hearings, reviewed lots of data and studies and suggested reforms. One of their initial findings was the high cost of tax system complexity which they estimated to be $140 billion per year. Per the panel:
"To put this amount in perspective, it is roughly the same as giving $1,000 to every family in America or the amount of money needed to fund all of the following: the Department of Homeland Security, the State Department, NASA, HUD, the EPA, the Department of Transportation, the United States Congress, our Federal courts, and all foreign aid."
I think this type of information needs to be better publicized. Most individuals will tolerate complexity if it gets them a deduction. But, they are not usually considering the cost to them and the aggregate cost to all taxpayers and the IRS of the provision. They are often not thinking that perhaps the deduction can be replaced with a higher standard deduction amount at no additional complexity cost.
I like the report because I think the panel did a great job getting at the problems with our federal tax system in terms of complexity, inequity, inefficiencies and lack of accountability and transparency. Unfortunately, the report really died upon issuance in November 2005 most likely because they proposed improving the mortgage interest deduction contrary to what "conventional wisdom" says it should be. The panel proposed that the home mortgage interest deduction be replaced with a credit equal to 15% of the interest paid with the debt limited to the average regional home price (about $227,000 to $412,000).
If that is what killed the report before it could get its hearing, I hope things have changed, but I suspect they have not. The panel's proposal would make the credit available to all homeowners with debt rather than only to the 1/3 of individuals who itemize deductions. Also, as a credit, it is worth the same to everyone (although higher income individuals tend to have bigger mortgages). It likely would also reduce one of the largest tax expenditures in the tax code (about $80 billion per year) and distribute this amount more equitably among taxpayers.
Here is an excerpt of the panel's chart showing some of the changes and how incorporated into their two key proposals:
|Source: Executive Summary, page xvii.|
|Source: Panel Report, Chapter 5, page 71.|
What do you think?