[Congressional Record Volume 147, Number 54 (Thursday, April 26, 2001)]
[Senate]
[Pages S3986-S3987]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                           TAX SIMPLIFICATION

  Mr. FEINGOLD. Mr. President, I rise to speak on a report issued 
yesterday by the Joint Committee on Taxation and hearings that are 
being conducted today in the Finance Committee on the subject of tax 
simplification.
  Last week, on April 16, millions of Americans mailed their tax 
returns, completing the last step in a process that many found arduous, 
burdensome, and needlessly confusing. The tax code has become 
increasingly complex since its last major reform in 1986. Taxpayers 
grow increasingly frustrated filling out their returns or are forced to 
pay others to prepare their tax returns for them. The government has 
thus imposed a kind of tax on paying taxes.
  In response to this complexity, most people have apparently thrown up 
their hands and paid others to fill out their returns. The Internal 
Revenue Service recently estimated that through the first week of 
April, about 57 percent of all individual income-tax filers used paid 
preparers. That rate was up from 56 percent last year.
  Paid tax preparers report that they did a booming business this year. 
Through March 30, H&R Block's revenue for tax preparation services rose 
by more than 10 percent over last year, to $1.5 billion. Its average 
fee rose to about $109.
  Aside from using paid preparers, to avoid tax complexity, many 
Americans forgo tax benefits to which they are legally entitled. For 
example, many people use the standard deduction, even though they would 
save money by itemizing their deductions. The General Accounting Office 
recently estimated that on more than half a million returns for 1998, 
taxpayers did not itemize, even though mortgage interest payments alone 
would have reduced their taxes or increased their refunds. GAO 
estimated that the resulting overpayments may have totaled $311 
million, or $610 per tax return.
  Earlier this year, the IRS's acting national taxpayer advocate issued 
a report to Congress in which he summed up: Complexity ``remains the 
No. 1 problem facing taxpayers, and is the root cause of many of the 
other problems on the Top 20 list.''
  All this complexity comes with substantial costs to our economy. 
Treasury Secretary Paul O'Neill said recently: ``The [tax] code today 
encompasses 9,500 pages of very small print. While every word in the 
code has some justification, in its entirety it is an abomination. It 
imposes $150 billion or more of annual cost on our society with no 
value creation.''
  The difficulty of filling out the income tax form is undermining 
Americans' confidence in the system. When people's interaction with the 
Federal Government is dominated by complex and burdensome tax forms, it 
can impair the people's trust in government generally.
  We need tax reform and simplification. And now is the perfect time to 
do something about it.
  In a fine Brookings Institution Policy Brief issued this month, 
scholars Len Burman and Bill Gale write:

       Tax complexity is like the weather: everyone talks about it 
     but nobody does anything about it. . . . Unlike the weather, 
     though, policymakers can do something about complexity. And 
     if they do not simplify the tax system now, when there are 
     surplus funds to pay for simplification, they will have lost 
     a golden opportunity.

  Burman and Gale are right. Tax simplification needs to be an 
important part of this year's tax policy debate.
  If Congress is to enact a greatly simplified tax code, it needs to 
have a thorough understanding of the problem as well as specific 
proposals to consider. Comprehensive studies of the issue can provide a 
needed impetus. The Report of Secretary of the Treasury Donald Regan, 
for example, laid the groundwork in substantial part for the 1986 
reform.
  I chaired the Taxation Committee of the State Senate in Wisconsin 
when we reformed the tax code in the mid-1980s. Democrats controlled 
both houses of the Legislature, and we had a Democratic Governor, but 
we used the Regan tax reform proposal as the basis for much of our own 
tax reform. The result was a greatly simplified tax system.
  Following on that model, in last year's budget resolution, I offered 
an amendment calling for the Joint Committee on Taxation to conduct a 
study of means by which we might simplify taxes. The Senate Budget 
Committee adopted the amendment unanimously. And the budget resolution 
that Congress adopted on April 13 of last year included it as section 
336. That section said, in relevant part: ``It is the sense of the 
Senate that . . . the Joint Committee on Taxation shall develop a 
report and alternative proposals on tax simplification by the end of 
the year. . . .''
  The staff of the Joint Committee on Taxation, under the direction of 
Chief of Staff Lindy Paull, took this and other requests along these 
lines seriously. They consulted with academics,

[[Page S3987]]

former chiefs of staff of the Committee, and former Commissioners of 
the IRS. Staff reviewed proposals that have been made, and considered 
particular issue areas. The resulting report, released yesterday, 
suggests ways to accomplish the same policy goals that underlie the 
current income tax code, but in less duplicative or less convoluted 
ways.
  I am glad to see that the Joint Committee has released its report. 
Similarly, I am gratified that Finance Committee Chairman Chuck 
Grassley is holding a hearing today to receive the report and discuss 
this important subject.
  Although I do not agree with every suggestion put forth in the 
report, I am convinced that this report and these hearings are exactly 
the kind of institutional step that we need to take if we are to reform 
the tax code.
  Here are a just a few examples of areas where Congress could well 
simplify the tax code:
  The AMT: The complicated Alternative Minimum Tax is beginning to 
affect more and more middle-income taxpayers. It needs reform.
  Capital Gains: Ever since the 1997 law created differing capital 
gains rates for differing holding periods, the capital gains form has 
become very complicated. Some have proposed an exclusion from capital 
gains income for the first several hundred dollars of capital gains 
income, so that modest investors in mutual funds would not be subjected 
to filling out the capital gains schedule.
  The Earned Income Tax Credit: At the Finance Committee hearing today, 
Richard Lipton, head of the American Bar Association tax section, 
argues for simplifying the earned-income tax credit, designed to help 
low-income working families. In Mr. Lipton's words, ``In effect, 
Congress has given the poor a tax break with one hand and then taken it 
away with the other by making it too complex to understand.''
  Child Credits: Robert Cherry and Max Sawicky of the Economic Policy 
Institute have proposed a universal unified child credit that combines 
the dependent care credit, the earned income tax credit, the child 
credit, and the additional child credit. Similar work has been advanced 
by David Ellwood and Jeff Liebman of Harvard University's John F. 
Kennedy School of Government. Congress could well examine combining 
various child credits to make them fairer and easier to use.
  The Standard Deduction: We could expand the standard deduction so 
that fewer taxpayers needed to itemize their deductions.
  The Personal and Dependent Exemptions: Alternatively, we could expand 
the personal and dependent exemptions.
  The Nanny Tax: Congress has simplified the law by raising the 
threshold of wages paid for filing employer taxes and by incorporating 
the filing into the form 1040. The threshold could be further raised.
  Education Incentives: Today's code contains several different 
education incentive provisions, including tuition credits, like 
Lifetime Learning or the Hope Credit, Education IRAs, State deductible 
tuition programs, limited interest deductions, and employer provided 
assistance. These provisions contain numerous and differing eligibility 
requirements. Congress might work to harmonize these programs.
  A simplified tax code makes good economic policy sense. We would 
improve the economy's efficiency if we could minimize the impact of the 
tax code on the economic decisions of businesses and individuals.
  The tax code's complexity frustrates average households. This is a 
real issue with many people of fairly modest means. I hold listening 
sessions in each of Wisconsin's 72 counties every year, and I 
frequently hear of people's frustrations with the tax code's 
complexity.
  I am gratified to see that the Joint Committee on Taxation has 
addressed the budget resolution's request seriously, and has produced 
its extensive product. I commend the Joint Committee's efforts.
  We need to advance the process of simplification further. I look 
forward to working with colleagues in the Finance Committee and the 
Senate on ways to reform and simplify the tax code.

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