Finding a way to simplify the U.S. tax code would enable the federal government to narrow the $345 billion annual gap between what taxpayers owe and what they pay, Senate Finance Committee Chairman Max Baucus said at a hearing.
“Complexity makes it hard for taxpayers who honestly want to pay their taxes to figure out what they actually owe, and as a result, they often overpay or underpay,” said Baucus, a Montana Democrat, at the hearing today.
Baucus said that in 1987, the year after the last major overhaul of the tax code, the Internal Revenue instruction booklet for individual filers was 56 pages. By 2009 it had grown to 174 pages, Baucus said. The hearing was one of a series of meetings Baucus is holding as Congress mulls an overhaul of the tax system.
David Kirkham, a maker of custom cars in Provo, Utah, and a Tea Party supporter, asked lawmakers at the hearing to streamline the code so he can hire workers for his factory instead of lawyers and accountants to calculate his tax liability.
“It’s immoral for you guys to have laws so complicated that I have to hire people” to figure them out, Kirkham said.
Baucus asked Kirkham what he would do to simplify the code.
Looking at Simplification
“I would eliminate all loopholes,” Kirkham said.
“What would those be?” Baucus asked, and Kirkham said he didn’t know. “I pay somebody else to do that,” Kirkham said.
Kirkham said in a phone interview later that he was invited to the hearing by Senator Orrin Hatch of Utah, the ranking Republican on the Finance panel, who may face a primary challenger next year backed by the Tea Party. Kirkham and other Tea Party members appeared yesterday at National Republican Senatorial Committee headquarters to protest Hatch’s endorsement by the group.
“You’ve got to hand it to Senator Hatch,” Kirkham said. “He’s been reaching out.”
Michael Brostek, director of tax policy and administration for the Government Accountability Office, said it isn’t known how much of the tax gap is traceable to the complexity of the code. “Certainly some significant portion is,” Brostek said.
National Taxpayer Advocate Nina Olson said the IRS is a victim of the tax code, too.
“Complexity makes it hard for the IRS to treat all taxpayers well because it’s so complex for them,” she said.
Neither Baucus nor Hatch offered an estimate of how much a simpler tax code might narrow the tax gap.
Hatch cautioned against expecting too much.
“It would be a mistake to put too much deficit reduction hope into that tax gap basket,” Hatch said.
© Copyright 2013 Bloomberg News. All rights reserved.