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IRS Watchdog Says Existing Tax Code Is Hurting U.S Revenue

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IRS Watchdog Says Existing Tax Code Is Hurting U.S Revenue

The Internal Revenue Service’s in-house watchdog group have said that the existing tax code is hurting U.S revenue, arguing that the need for reform was a predominant priority. This was made known through a report compiled and published by the group. The report contends that congress should simplify  the tax code and take a hard look at the overwhelming tax breaks that are costing the government intimately the same amount that individual taxes generate.

The report suggests that congress should address the tax reform in a similar fashion to zero-based budgeting, urging lawmakers to analyze the tax code in totality and remove any tax breaks which does not bring the greatest public benefit.

Nina Olson, a National Tax Payer Advocate and a key driving force behind the report, shared insights on the matter. While issues such as identity theft and lack of funding weigh heavily on the IRS, Olson argued that the need for tax reform was paramount, describing it as an ‘overriding priority’. Olson says that the current code is overly complex, burdensome and costly not only to the IRS, but also to tax payers.

Congress’s nonpartisan Joint Committee on Taxation forwarded estimates that pegged aggregate tax subsidies for 2013 fiscal year at $1.1 trillion; this is slightly lower in contrast to estimates for revenue from individual income tax for the same period, which was pegged at $1.4 trillion.

In light of these estimates, the IRS watchdog’s report tries to create a more practical picture of how the situation will pan out if congress eliminated all the tax breaks. The report contends that if congress slashed individual rates across the board by 44 percent, it would still rake in the same amount of revenue compared with when it scrapped off the tax breaks.

What about special interest groups with subsidies?

William G. Gale, a tax policy expert at the Brookings Institution, concurs with the watchdog’s assessment. Nonetheless, he is not sure whether congress will be able to handle the pressure from special interest groups who depend on subsidies.  “It would be [a] better policy to move in that direction, but everyone thinks their tax break should be sacrosanct,” he remarked. In addition Gale also introduced the sticky, yet inevitable, aspect of politics, arguing that recent history suggests that republicans are likely to turn down any plan to generate revenue, while democrats are likely to pursue  lower rates.

Another notable highlight’s in Olson’s report was her warning against underfunding the IRS, citing that lawmakers maintained the budget at $12.1 billion for 2011, later slashing it to $11.8 billion for 2012.

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