Tax Reform: You Can't Have It Both Ways

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In my three plus decades in tax practice, the most common complaint I have heard about our tax code is that it is too complicated. A complaint with which I agree. Another complaint that I have frequently heard is that the lobbyists are in control of our tax code. Again, I concur. What frustrates me is that Congress is finally addressing these complaints and they are not getting support from the taxpayers.

Congress’ current tax reform proposals represent the most significant effort towards simplifying the tax code since at least the 1980s. I was expecting a favorable reaction. Instead I am hearing nothing but complaints about Congress taking away “my deduction(s) and credits”. In case it isn’t evident, to simplify the tax code, you must eliminate the elements of the code that complicate things. Those complications present themselves typically as deductions and tax credits. Not only does eliminating deductions and tax credits simplify the code, it reduces the power of the lobbyists and, as a bonus, removes a major source of noncompliance. You see, if you can no longer deduct business entertainment, you can no longer cheat by inflating your business entertainment deduction. Don’t underestimate the value of simplification’s impact on tax compliance as the IRS’ most recent tax gap estimate is $406 billion per year.

Simplifying the tax code, eliminating lobbyist’s power and improving tax compliance are all things that will benefit every taxpayer and help our economy. Sometimes tax code changes can’t be evaluated merely on how much more or less an individual will pay in taxes. The bigger picture needs examination.

To anyone who has cried out for tax code simplification and is now complaining about Congress taking away “their” deduction(s) and credit(s), you can’t have it both ways.