Saturday, January 9, 2010

Dear Congress and Chairman Rangel in particular

Dear Congress and Chairman Rangel in particular,

Every year, I get to see the tax code you have written through the eyes of a fresh set of bright and energetic college students.

My Union College Volunteer Income Tax Assistance VITA students are working hard this weekend in order to learn all the obscure parts of that Rube-Goldberg machine that you have the nerve to call an income tax code.

It's an outrage.

Every year for the past decade my college classmate, National Taxpayer Advocate Nina Olson, has called for Congress to clean up its act and simplify the tax code so that ordinary working Americans can understand their tax obligations.

Do you even bother to READ Nina's reports?

I've been reading her reports for the five years I've been running the Union College VITA site. I keep hoping that you will get around to it some day. If you don't have time to read the full reports, try her Wall Street Journal op-ed for a succinct summary of how YOUR failure to be succinct is adding to the burdens on ordinary Americans. Here's an excerpt:

Since the beginning of 2001, there have been more than 3,250 changes to the tax code -- an average of more than one a day -- including more than 500 changes last year alone.

- The tax code has grown so long that it's challenging even to figure out its length. A search of the code conducted in the course of preparing my last report turned up 3.7 million words. A 2005 study by the Tax Foundation, a tax research organization, found that the number of words in the code has more than tripled since 1975.

But most importantly, the complexity of the tax code leads to perverse results. On the one hand, taxpayers who honestly seek to comply with the law often make inadvertent errors, causing them either to overpay, or to become subject to IRS enforcement actions for mistaken underpayments. On the other hand, sophisticated taxpayers often find loopholes that enable them to reduce or eliminate their tax liabilities.

Examples of complexity in our current tax law abound. One significant problem is the ambiguity concerning tax breaks meant to encourage taxpayers to save for education and retirement. The number of such tax incentives has grown to at least 27. And the eligibility requirements, definitions of common terms, income-level thresholds, phase-out ranges and inflation adjustments vary widely. This undermines the intent of the incentives, since taxpayers can only take advantage of incentives if they understand them.

Others have added their calls for reform to Nina's voice.

But nothing has gotten better, as far as tax simplification goes, in the last five years. The Bed Buffaloes in the tax code have only multiplied.

Every year, my VITA students (who are AMAZING! I am so proud of them!) must work harder and harder, because you have made the tax code more and more complex by patching on more and more complexity.

There are many provisions with good intentions in the tax law, but they are buried in such a mound of spaghetti legal gobbledigook that taxpayers may not have a chance to find all those that apply to them.

The VITA program volunteers and the wonderful folks at the IRS Albany SPEC office who assist us are working hard, but, Congress--and Chairman Rangel in particular, you could do a lot to make our jobs much easier.

A bipartisan presidential advisory panel made lots of great simplifying suggestions in 2005. You probably didn't bother to read much of that either.

Do you even care about the vast amounts of time, energy, and expense that your tax code requires ordinary working American to SQUANDER on complying with the byzantine tax laws you have written?

Congress, you rightly accuse the mortgage banks, credit card issuers, and other financial institutions of sometimes pulling a fast one over consumers with boilerplate forms full of legal gobbledigook and hidden "gotcha" clauses that no ordinary consumer can really understand.

But don't you realize that you are guilty of even worse when you write a tax code full of gobbledigook and gotcha clauses!

Congress, and Chairman Rangel in particular, you have a responsibility to LEAD BY EXAMPLE.

Consumers can make a choice not to deal with banks that have mysterious inscrutable forms. They can take their business elsewhere or they can remain among the "unbanked."

By contrast, American taxpayers don't have a choice about dealing with the US tax code. The tax code you write is the only game in town for Americans who want to comply with the law.

Surveys show that the overwhelming majority of Americans DO want to comply with their tax obligations, far more than in many other countries. Americans' desire to comply with their tax obligations is an enormous asset and credit to this country, but it is one that you are SQUANDERING with the outrageous complexity of the tax code you have written.

Wealthy Americans can afford to hire expensive tax lawyers to create creative tax shelters that exploit all the Bed Buffaloes you've put into the tax code, but ordinary Americans don't have the means to hire such help.

Congress, a recent analysis reported that 44% of you are millionaires.

Chairman Rangel, in particular, it appears that you may also be a millionaire as well, although the financial disclosure categories are broad enough that we can't be sure, especially given the difficulties you've had with filing accurate tax returns of your own. You certainly have the money to pay for expensive experts to help you comply with the complicated tax code you've written, but you have demonstrated an inability to do so.

Secretary of the Treasury Timothy Geithner has had problems with tax compliance as well, again, despite having the funds to hire experts to assist with preparation of his returns.

When are you going to fix the tax code so that ordinary Americans, who don't have access to the experts that you and Secretary Geithner do, can comply with their obligations under the laws you have written?

In the meantime, we will do the best we can to serve low-income Schenectady taxpayers. The number we can serve is, unfortunately, only a small percentage of those who want and need our help.

We are scrupulous about the quality of the tax returns we prepare for taxpayers at our VITA site, because we know taxpayers in their circumstances are economically vulnerable. They are also far more likely to get audited than the average American. Audits of low-income working parents have constituted 40% of the audits in recent years, even though such taxpayers are far less than 40% of the population. They don't have the money to hire the fancy experts some of you millionaire Congressmen can hire, so we do the very best we can for them, meeting and exceeding the requirements of the IRS VITA Quality Review process.

The demand for our help vastly exceeds the number of taxpayers we can serve. If you would simplify the tax code along the lines suggested by the 2005 Presidential Advisory Panel, I estimate we could serve at least ten times as many taxpayers as we currently do.

Moreover, if you would simplify the tax code, many taxpayers would not even need our help to begin with!

Americans have a lot of financial problems now. Indeed, the tax code you have written may well have contributed to a lot of those problems in the first place.

You may not be able to fix all our economic ills right away, but the very least we can expect from you is that you write a simpler tax code that makes it easier for ordinary American to make smarter financial planning decisions.

Mary O'Keeffe
Union College Volunteer Income Tax Assistance program
Schenectady NY

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