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YES, THE TAX CODE IS TOO COMPLICATED

July 25, 2005

New tax blogger Kreig Mitchell livened up the tax blogosphere during my vacation by making the counterintuitive assertion that the tax code is not excessively complicated:

It seems to be a generally accepted belief that our Internal Revenue Code (the Code) is too complex. But this belief has no foundation in reality. The Code is a model of clarity and simplicity for all it is to accomplish (I bet you never heard anyone say that before). (emphasis added)

"For all it is to accomplish." There's the rub.

The tax code is asked to accomplish way too much. If the Code was used simply to raise the revenue necessary to fund government operations, it would be much simpler. But revenue-raising is the least of it nowadays.

The complexity arises from from Congress burdening the tax law with other goals. Just a few of these, off the top of my head:

-Encourage home ownership
-Discourage excessive borrowing against homes
-Encourage employee ownership of corporations
-Discourage employee ownership by family-owned S corporations
-Encourage biomass and alternative energy production
-Ecourage oil production
-Discourage the use of energy tax shelters
-Encourage domestic manufacturing in preference to service and retail
-Encourage retirement savings
-Discourage excessive retirement savings

You get the picture. New Code provisions are added piecemeal, year by year, so they don't tie together, and occasionally they conflict. By qualifying the code by saying it does what asked to do well ignores the real problem - it is asked to do too much.

A quick example will illustrate how the tax law sometimes makes even a relatively simple question complicated: determine whether a farm with three equal individual partners, only one of whom works on the farm, can use the cash method of accounting. You will require no fewer than four code sections to get the correct answer. (448, 461, 1256, and 464).

Professor Maule and Stuart Levine also weigh in; Mr. Mitchell responds to them here.

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Comments

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Just wanted to say Welcome Back!

Glad you made it home safely.

And I'm wondering about this Kevin fellow: if he doesn't believe that the tax code is overly complicated, what WOULD he consider to be so?

Email: jkristan@rothcpa.com  •  Phone: (515) 244-0266
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