Why Congress Won't Simplify the Tax Code

Article Highlights

  • The tax code offers more than 20 different types of tax-preferred savings accounts each with different limitations.

    Tweet This

  • Everyone favors simplifying the tax code, nobody favors it strongly enough to put it at the top of the agenda.

    Tweet This

  • Fundamental tax reform, such as a move to consumption taxation, could significantly reduce complexity

    Tweet This

Americans deeply disagree about how much revenue the government should raise, how much of the tax burden should fall on the rich, and the size of the tax incentives, if any, that should be provided for saving and education.

But we are all likely to agree that tax code is too complex. So why did Congress and the president allow this complexity to arise, and why don't they correct it?

Some complex provisions are adopted to accommodate special interests that lobbied for preferential treatment, but many provisions are adopted for more benign reasons. Congress frequently adds provisions to fine-tune various tax breaks, seeking to ensure that they will function appropriately in every specific situation that might arise. For example, the tax code offers more than 20 different types of tax-preferred savings accounts and numerous incentives for higher education, each with different eligibility rules and limitations.

The goal is laudable, but the resulting complexity takes its toll. When Congress adopts new provisions to address specific issues, it often pays little heed to how they interact with existing provisions.

Once complexity creeps in, it's hard to get rid of it. Although everyone favors simplifying the tax code, nobody favors it strongly enough to put it at the top of the agenda. Candidates can stir voters' passions by promising to protect Americans from tax hikes or by demanding that the rich pay their fair share, but not by calling for the consolidation of 20 tax-preferred savings accounts into three simpler accounts.

Fundamental tax reform, such as a move to consumption taxation, could significantly reduce complexity, although not to the extent that some overly enthusiastic advocates promise. But, that kind of reform would have to confront the ideological issues that more modest simplification efforts are able to side-step. No decision on fundamental tax reform should be based solely on simplification.

Much as we might wish otherwise, there are no easy solutions to the problem of tax complexity.

Alan D. Viard is a resident scholar at the American Enterprise Institute.

Also Visit
AEIdeas Blog The American Magazine
About the Author

 

Alan D.
Viard

What's new on AEI

Study: Piketty tax plan would boost equality by making rich less rich. But poor would be poorer, too
image Rep. McCaul’s cybersecurity information sharing center: If you build it, will they come?
image Halbig and its aftermath
image Culture of how Washington pays for medical care
AEI on Facebook
Events Calendar
  • 28
    MON
  • 29
    TUE
  • 30
    WED
  • 31
    THU
  • 01
    FRI
Tuesday, July 29, 2014 | 10:00 a.m. – 12:00 p.m.
Is Medicare's future secure? The 2014 Trustees Report

Please join AEI as the chief actuary for Medicare summarizes the report’s results, followed by a panel discussion of what those spending trends are likely to mean for seniors, taxpayers, the health industry, and federal policy.

Event Registration is Closed
Friday, August 01, 2014 | 10:30 a.m. – 12:00 p.m.
Watergate revisited: The reforms and the reality, 40 years later

Please join us as four of Washington’s most distinguished political observers will revisit the Watergate hearings and discuss reforms that followed.

No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.