Tax Division testifies on administration's tax proposal.

• Author: Padwe, Gerald W.
• Position: AICPA Tax Division, Clinton Administration

On Mar. 17, 1993, Leonard Podolin, immediate past chairman of the AICPA Tax Division's Tax Executive Committee, testified at a House Ways and Means Committee public hearing on President Clinton's proposals for public investment and deficit reduction. The Division's testimony was presented as part of a panel that included the New York State Society of CPAs, the ABA Tax Section and the Tax Executive Institute.

The Tax Division staff was forced to quickly pull together the comments of some 20 Tax Division technical committees when the hearing date was moved up on short notice. The technical committees reviewed the Treasury Department's Summary of the Administration's Revenue Proposals and indicated to staff which provisions they thought required comment. The draft testimony was discussed and finalized by the Tax Executive Committee. Because of the time constraints imposed by the scheduling of the hearing as well as the five-minute testimony limit, the Tax Executive Committee decided to limit its March 17 comments but to submit supplementary comments by the April 6 deadline for inclusion in the printed hearing record. In addition, the Tax Division is also anticipating developing comments for the expected Senate Finance Committee hearing (although, to date, none has been scheduled). The following comments were developed based on the AICPA's interest in sound tax policy and administration, rather than from any particular economic or political vantage point.

Simplification

The AICPA has, for some years now, been urging the need for simplification in the U.S. tax system. Year after year, statistics indicate that approximately one-half of individual taxpayers feel it necessary to hire professional preparers to comply with their tax return obligations. Although many members are beneficiaries of this fact, the AICPA strongly believes in the need for constant attention to simplicity as an important tenet of a tax system that aims for voluntary compliance.

In an age of highly complex financial transactions, and economic and equity considerations, there will continue to be a need for complex tax provisions. However, Congress needs to consider carefully whether American taxpayers are approaching a point of diminishing returns when it comes to respect for the tax system and for voluntary compliance.

Congress is aware of the problem. We appreciate the past and present efforts of House Ways and Means Committee Chairman Dan Rostenkowski to include a simplification title in a tax bill (including his reintroduction of a simplification bill this year). And over the past several years, we have been pleased with the approach to "rough justice" generally espoused by the Treasury Department and the IRS.

Still, it is critical that Congress not lose sight of the need for continuous efforts toward a simpler law. Given the limited resources of the IRS to audit returns, the government's interests, as well as those of taxpayers, are served by less complexity. Document matching alone cannot replace a lack of other audit resources in a complex tax world. In short, complexity carries a real cost to the tax system, through lower levels of compliance by taxpayers (inadvertent and illegal) combined with the inability of the government (through lack of resources) to provide adequate monitoring.

Complexity, and lowered respect for the system, also come from "back door" approaches to tax policy. The government can, and should, be more open with American taxpayers. For example, rather than imposing a 10% surtax on individual taxable incomes greater than $250,000, why not simply put a 40% (or 39.6%) bracket in Sec. 1? Instead of making the...