Reforming the Tax Code – Not!

As you can imagine in my 12 years at the helm of Accounting Today, stories that were tax-centric in nature surfaced a time or two. 
 

We covered tax cuts, tax bills, tax avoidance schemes, prison terms for violators and what appeared to be every reader’s favorite – stories of celebrity tax troubles.

It seems there’s a certain schadenfreude that occurs when regular working folks hear of actors, musicians and athletes who regularly earn mega-dollar contracts and then inexplicably end up millions in tax arrears.

We also devoted pages of content to tax reform and once even hosted a roundtable with members of former President George W. Bush’s Panel on Tax Reform, who more or less assured us at the time that once their recommendations were submitted to Treasury, tax reform was just around the corner, or more accurately, just around the next session of Congress.

That was nearly eight years ago. 

And guess what? The IRC code is still over 1 million words, the Alternative Minimum Tax has been patched more times than a retreaded tire and folks like Facebook co-founder Eduardo Saverin have renounced their U.S. citizenship and relocated to more tax-friendly venues like Singapore.

Despite the ongoing bickering on both sides of the aisle, tax reform is something that both major parties have long agreed upon.

So what’s the problem?

Well, for one, even though we all agree the Tax Code needs to be simplified, what would replace it? A Flat Tax, a Fair Tax, or some combination thereof? One of the harsher realities is that only a small percentage of politicians and an even smaller number of taxpayers understand the complexity of the current Tax Code, let alone is knowledgeable enough to offer cogent alternatives.

For example, how many people in the House and Senate (let alone your average taxpayer) can accurately define the difference between a tax credit and a tax deduction and state it in layman’s terms? [For those keeping score at home a tax credit reduces the income tax you pay, while a deduction reduces the amount of your income that is subject to income tax].

So maybe tax education should come before tax reform.

And when was the last time you heard a politician issue a campaign promise of total tax reform as opposed to one giving his/her constituency “tax breaks?” My guess is seldom to never.

It’s far easier to modify existing tax laws than to rip and replace the entire IRC Code and what’s worse is new legislation is usually drafted by those with no clue of how it will affect existing IRC guidelines.

We may see some movement after the 2012 elections but I’ll remain skeptical for short term.

In the meantime, did you hear the one about the former NFL star who earned $100 million in his career and now has a tax bill of $10 million?

Sadly, I’ve got a million more just like that.