SIMPLIFYING OUR TAX CODE

By Rob Portman

Over the years our federal tax code has become overly complicated and burdensome, with the average taxpayer taking 14 hours just to complete his or her taxes. Congress needs to pass legislation to drastically simplify our tax code and make it easier for taxpayers to comply with tax regulations.

Several years ago, I served as Co-Chair of the Commission to Restructure the IRS. We spent a lot of time investigating what had gone wrong at the IRS and how the IRS could be improved. And there was plenty that needed fixing. We added a lot of important taxpayer rights and totally restructured the agency. But we also discovered that many of the problems with the IRS, particularly with enforcement of the tax laws, were directly due to the complexity of the tax code. Which is why we made as part of our final report, sixty specific recommendations for tax simplification. Unfortunately, almost none have been enacted.

Nearly every taxpayer expresses frustration with the code, but the effects of a complex code are more than just taxpayer frustration. The effects also include: decreased levels of voluntary compliance, increased costs for taxpayers and our economy, and increased difficulties in the administration of tax laws.

The average taxpayer now takes more than 14 hours to do his or her taxes. Estimates of how much taxpayers spend complying with the tax code range from $70 billion to $125 billion a year. What a waste. A lot of that is because more than half of all taxpayers now have to use a tax preparer. We need a tax code that is more simplified and streamlined, so that the average taxpayer doesn't have to be intimidated by doing their taxes.

For all these reasons, I introduced the Tax Simplification Act of 2002, legislation that would drastically simplify our nation's tax code. This legislation would take some of the most ridiculous aspects of our tax code and either reform them or remove them.

One of the most nonsensical elements of our current tax code is that it often contains multiple definitions for the same thing. For example, take the definition of a "child." The tax code has six different definitions for a "qualifying child." In addition, the code has nine different definitions for "qualifying higher education expenses." This drives taxpayers crazy and adds costs if you use a tax preparer. My Tax Simplification Act would create one, uniform definition for each of these terms.

Another outdated segment of our tax code is the Alternative Minimum Tax (AMT), which forces many middle-income taxpayers to calculate their taxes a second time using a separate structure and then pay whichever total is higher. Even when you use legitimate tax deductions or credits found in the code, you later find out you have to pay higher taxes under the AMT. It was designed for high income taxpayers, but is increasingly falling on the middle class. For example, I heard from a mother of five who earned $45,000 and paid $1,850 in AMT. It is estimated that as many as 35.5 million taxpayers may be subject to the AMT by 2010.

The AMT is also amazingly complex. It requires taxpayers to complete a thirteen-line worksheet, not to determine AMT, but simply to find out if they are liable for AMT. If they are liable, they must fill out a 54-line form. And many taxpayers fill out this form only to find that they are not subject to the tax after all. That is why the Tax Simplification Act would completely repeal the AMT.

My legislation would also simplify capital gains calculations. Under current law, seventeen different rates of tax may apply to capital gains income. Taxpayers must calculate different rates depending on what kind of asset it is, and how long they have held onto it. It's a mess. So my bill would adopt one capital gains rate: a uniform percentage deduction in lieu of multiple tax rates.

Many taxpayers who save just a small amount each year -- perhaps in a bank savings account -- are still required to itemize because a portion of their income came from interest. So the Tax Simplification Act would create a "small savers" exemption that would exempt the first $500 of dividend or interest income. This will mean that millions more taxpayers can just file a simple Form 1040EZ.

Another problem with our tax code is that it is cluttered with over 90 provisions that are completely irrelevant or out-of-date. My legislation would shorten the tax code by just removing these "deadwood" provisions.

American taxpayers are tired of the complexity and uncertainty. Tired of the mountains of forms and instructions they must read every year just to calculate their own income taxes. The Tax Simplification Act would restore some sorely needed common-sense to our tax code, help make the IRS work better for taxpayers, reduce compliance costs and headaches, and help our economy.