The IRS reported that National Taxpayer Advocate Nina E. Olson recently issued her annual report to Congress. In it she stated that tax reform was the overriding priority in tax administration. “The existing tax code makes compliance difficult, requiring taxpayers to devote excessive time to preparing and filing their returns”, Olson stated.

Since 2001, Congress has made nearly 5,000 changes to the tax code, an average of more than one a day, and the number of words in the code has approached nearly five million. To reduce the burden on taxpayers and improve the public’s confidence in the integrity of the system, the report urges Congress to simplify the tax code. If Congress were to eliminate all tax expenditures, i.e. income exclusions, exemptions, deductions and credits, the indications are that individual income tax rates could be cut by 44 percent.

The report suggests that a tax break should be retained only if a compelling argument can be made that the benefits of that break outweigh the complexity burden it creates. Does the incentive provided make sense? If so, can it be administered without imposing unreasonable burdens on either taxpayers or the IRS?

 The report recommends that Congress take several steps, including:

• Hold meetings with constituents to discuss the complexity of the tax code and the trade-offs between tax rates and tax breaks that will be required.
• Use a “zero-based budgeting” approach adding benefits back only if the members of Congress conclude that, on balance, the public policy benefits of such action outweigh the complexity it imposes.

To accomplish such a dramatic change in congressional thinking seems insurmountable, but the report does offer serious food for thought.