Want a Better IRS? Simplify the Tax Code
More Tax Revenues?
The Congressional Budget Office estimates that the $80 billion will raise about $200 billion in additional revenues. Larry Summers and Natasha Sarin (who now works in the administration) explain that the methodology behind such estimates ignores or plays down the effects of better taxpayer service, updated technology and better voluntary compliance.
The IRS reckons the gap between what’s owed and what’s collected is roughly $7 trillion over 10 years; Summers and Sarin think the extra funding should easily cut that by $1 trillion.
Their arithmetic looks plausible — only keep in mind that the tax gap is not the best way to judge the system. The compliance burden is a cost in its own right, and if you cut the gap by increasing the burden, it’s a mixed blessing. The goal should be to cut the gap while reducing the burden. That’s entirely possible, and you do it by simplifying the code.
One example should suffice. The U.S. provides tax relief for certain kinds of retirement saving. Security in retirement for people who might otherwise lack it is a worthy purpose, and most countries offer tax-advantaged treatment for those on middle and low incomes.
But none that I know of rival the U.S. for the Kafkaesque convolutions of its approach (many of which conspire, it so happens, to narrow the benefits to those with high incomes and accountants on retainer).
Retirement Matters
Some employer-based schemes — 401(k)s, 403(b)s and so on — are relatively straightforward. But then you’ve got Individual Retirement Accounts: “traditional IRAs” (including “Stretch IRAs”), Roth IRAs (not forgetting “Back-Door Roths”), Payroll Deduction IRAs, Simplified Employee Pensions, “SIMPLE IRAs” (it stands for Savings Incentive Match Plan for Employees), and SARSEPs (Salary Reduction Simplified Employee Pension Plan).
Now, if all those very simple simplified schemes strike you in fact as a bit complicated, brace yourself and look at the IRS page explaining the rules for drawing down these accounts. Be sure to follow the links! You wouldn’t want to make a mistake — especially now that your chances of being audited are about to go up.
For decades, whenever Congress has “reformed” the tax code, it has just layered on new complications. The U.S. now has a system that might have been designed to fail, incentivize avoidance, perpetuate a colossal tax gap, and drive taxpayers and IRS officials alike out of their minds.
The biggest problem with the IRS is not that it’s been badly managed (though perhaps it has been) or under-resourced (which it undoubtedly has been), but that hyperactive legislators have given it an impossible task. Sadly, $80 billion won’t come close to putting that right.
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Clive Crook is a Bloomberg Opinion columnist and member of the editorial board covering economics, finance and politics. A former chief Washington commentator for the Financial Times, he has been an editor for the Economist and the Atlantic.
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