We meet today to continue our dialogue about what I hope will result in a bipartisan path forward to reform our federal income tax system. While there has been a lot of valuable discussion about the impediments the tax code creates for America’s job creators – and we will certainly continue that discussion over the time ahead – today’s hearing will focus on the burdens imposed by the current Federal income tax system on individual taxpayers and families.
Today’s hearing is especially timely since each one of us likely knows a family that is racing to file their taxes before this year’s April 18th deadline. Because of the thousands of amendments to the tax code enacted over the past quarter-century, this race to the finish has become increasingly challenging over the years. Since the Tax Reform Act of 1986 – the last comprehensive tax reform enacted by Congress – the code has become a maze of increasingly complex credits, deductions, exclusions and exemptions.
The challenges created by the tax code – for job creators and families – are rooted in a similar place. The tax code is too complex, too costly, and takes too much time to comply with. Whether it is the compliance and administrative burdens or the impact of temporary and expiring tax provisions, today’s tax code is hampering the ability of individuals and families to plan their finances with reasonable certainty.
With nearly 4,500 changes in the last decade – 579 of them in 2010 alone – the code is too complex. Adding to that complexity is the fact that each tax code provision is a little bit like a cell. Each one has its own distinct features, characteristics and lifespan. For example, over 200 Federal tax provisions are scheduled to expire between 2010 and 2020, whereas in1998, there were only 50 expiring provisions. And while 20 years ago, it was mostly businesses affected by the temporary nature of tax provisions, now families and individual taxpayers are held captive to the calendar. For example, tax rates on ordinary income and on investments, the amount of the child tax credit, and deductions for state sales taxes and college tuition – just to name a few – are all temporary in nature.
Given the complexity created by the ever-changing tax code, it is easy to understand why compliance with it has become too costly for American families. According to the National Taxpayer Advocate, in 2008 alone, taxpayers spent $163 billion complying with the individual and corporate income tax rules. That’s billion with a “b”. These costs impede the ability of individuals and families to put together their household budgets. And since provisions may change from one tax filing season to the next, it is no wonder that almost nine out of ten families either hire tax preparers or purchase software in order to calculate their taxes. This is a sad reminder that we now have a code that can only be managed if you happen to be someone who can hire an expert to deal with its challenges.
Not only is the tax code too complex and too costly, it takes too much time to comply with. Navigating through the tangled web of the tax code has resulted in taxpayers spending over 6 billion hours annually to comply with the code. Ask any family, and I am sure they will have a long list of better ways they could be spending their time.
Although it will require a lot of hard work on our part to achieve consensus on a solution, I think it is safe to say we all agree that the current tax code is broken. We can do better. The Members of the Joint Committee on Taxation had a very positive conversation with two of the key architects of the Tax Reform Act of 1986 during last week’s JCT roundtable discussion: Secretary Jim Baker and Congressman Dick Gephardt. Their message was clear – it will take the leadership of this Congress and the White House to get this done. The American people deserve a tax code that is responsible and responsive to their needs. We can do our part by working together to make it one that is fairer and simpler for all families.