Friday, January 16, 2009

Simplify the Tax Code? Who’s Kidding Who!

Treasury Secretary-designate Timothy Geithner will not be confirmed in time to take office once President-elect Obama is inaugurated. Failure to pay certain taxes on time along with taking several unlawful deductions have slowed Senate proceedings. But Obama is standing by his man. Geithner is expected to be confirmed within a few days of the new administration. Indeed, failure to meet all his federal tax obligations on time is being characterized as “honest mistakes,” and have led to renewed calls to simplify the federal tax code.

Politicians, business associations, citizens’ groups, and the media have been urging tax simplification for many years. Numerous commissions have recommended simplification measures. Nonetheless, since passage of the 1986 Tax Reform Act, the tax code has steadily grown in length and complexity.

Now comes a 2009 stimulus package with proposals for $275-300 billion in tax cuts. On January 15, 2009, House Ways and Means Committee chairman Charles Rangel outlined the economic recovery program that would be considered next week in the full committee. It included several dozen tax items, some new, with other provisions expanded or modified. The full committee, along with the Senate and the White House, will likely add more provisions. The regulations that will accompany the final legislation will run hundreds of pages. Tax forms will get longer and more complicated.

Promises to simplify the federal tax code are no match for the economic and ideological pressures that result in complexity. Politicians who call for simplification turn right around and further complicate the code with new credits, exemptions, adjustments, preferences, and deductions.

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