In trying, for my own benefit (and a future article), to identify the reasons for complexity, I come up with these:
- Too many provisions. There are multiple tax relief measures with similar purposes. For example, family measures (head-of-household filing status, dependent deduction, child care credit, child credit, EITC), education, retirement, mileage rates, depreciation, and more.
- Using the tax law to remedy all problems. For example, subsidizing higher education costs for families and individuals, encouraging green behavior, and much more. Adding new provisions without removing any old provisions.
- Trying to make the law more progressive or less regressive without changing the tax rate or tax rate structure. For example, phase-outs, partially refundable credits for some individuals (such as child credit and Amercian Opportunity Tax Credit).
- Using the same word but with different meanings. For example, phase-out, modified adjusted gross income (a term used for most phase-out rules, but not always defined the same way), child, small, and others.
- Ignoring existing rules. For example, odd due date rule for FBAR (June 30), creating a child credit rather than increasing the dependent deduction, and more.
- Overly complicated approaches to prevent possible abuses. Examples – kiddie tax, AMT, among others.
- Desire for accuracy. For example – not excluding small amounts of cancellation of debt income, the "kiddie tax" calculation, and others.
- Having two parallel tax systems. We have both a regular tax system and the AMT, rather than reducing or cutting back the number of tax deductions, exemptions and credits. (Please see my December 2007 op ed in the Business Journal for why the AMT should be repealed.)
- Budget related problems. For example, temporary provisions that are continually renewed because to make them permanent costs too much in a ten-year budget projection and a single bill that needs to be revenue neutral (more spending cuts or tax increases would be needed in the bill to make the provisions permanent).
What do you think?
