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Posted by on Sep 22, 2015 in Economy, Law | 7 comments

America’s Tax Code: Lies, Exaggerations, and the Truth

I don’t know if you’re keeping track, but the list of exaggerations and bold-faced lies spouted by presidential candidates continues to grow at an alarming rate. One of the most persistent is a general condemnation of the United States Tax Code, which several candidates are happy to tell you is 70,000 pages in length.

The truth is, our tax code is not 70,000 pages long. But like many pieces of persistent rhetoric, it’s a popular sound byte that continues to flourish. So let’s take a look at the much-maligned “Tax Code,” and explore the role it’s likely to play in the 2016 presidential campaign.

What Is the US Tax Code?

So what do we mean when we talk about “The Code”? Professionals and tax experts use this shorthand to refer to Title 26 of the Internal Revenue Code. Anyone is free to petition the Government Printing Office for a copy, which will weigh in at a relatively svelte 2,652 pages long—a far cry from the 70,000 page claim favored by politicians.

But to really understand why the 70,000 page myth remains so popular, we need to wade into an ongoing rivalry between competing publishing companies. Thompson Reuters, based in Canada, and Wolters Kluwer, a Dutch company, sell comparable collections of tax material that actually exceed 70,000 pages in length. Meanwhile, they admit that only around 2,600 of these pages are an actual part of the Code.

In other words, the total page count goes up dramatically when you add in the annotations and supplemental materials required to understand and interpret the Code itself.

Why Is the Code So Long?

Now, then. An important question remains: even if it’s not 70,000 pages, isn’t 2,600 pages too long as well? When you sift out everything else, the portion of the Code that deals directly with income taxes still amounts to about 2,000 pages. Though I’m loathe to give her any additional publicity, Carly Fiorina suggested recently that the tax code could be whittled down to just three pages.

So what’s in the tax code that pushes its page count so high? Among other things, the Credits Against Tax section, which comprises Part IV of Subchapter A (You’re lost already, aren’t you? I know I am.) contains a number of credits for many sub-sections of American society. There are credits for senior citizens and people on disability, there are energy and real estate credits, and credits for having children and pursuing education. Another section, Section 112, deals specifically with members of the armed forces who reside in combat zones.

But perhaps the most interesting reason for the Tax Code’s length is the fact that just about all of us have come up with some clever interpretations of tax law over the years. Reilly’s Third Law of Tax Planning states that “Any clever idea that pops into your head probably has a corresponding rule that makes it not work.”

In other words, a considerable number of those 2,000+ pages that make up the Tax Code are there simply to shut down people who would attempt to exploit or abuse it. According to Hodgson Russ, the IRS paid whistleblowers a cumulative $230 million over the course of the last three years for bringing tax fraud to light.

It’s Always Going to Be Long

Look: nobody enjoys doing their taxes. Even with useful tools like TurboTax, or (for those who can afford them, personal tax experts kept on retainer), it’s clear even to those of us on the lower end of the income spectrum that it seems overly complicated.

But that’s always going to be the case. America is home, after all, not just to private citizens, but also to corporations (domestic and multinational), non-profits, and entities of almost endless sizes and shapes. There’s a piece of the Tax Code that applies specifically and exclusively to each of these.

And that’s not likely going to change, which means that each time a presidential aspirant hauls out the 70,000 page claim, they’re not just exaggerating, but also failing to contribute anything meaningful to this debate.

Yes; the tax code could (and probably should) be simpler. But it’s time to stop pretending that page count is a legitimate way to measure that complexity.

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  • Lorie Emerson

    Page count on jusr about anything is a ridiculous way to judge its merits.

  • Slamfu

    All that is very true, but good luck fitting that into a 15 second sound bite. You would clearly make a terrible politician on the stump, which is probably a point or ten in your favor 🙂

    I’m not a tax expert, or a scientist, but seems to me that a lot of the complexity of the tax code is generated by complex tax avoidance mechanisms devised by corporations and investment folks, the very people who decry the complexity of the tax code while they benefit from it. Corporations love to whine about 35% tax rate being the highest in the world, while knowing they average about 15% in actual taxes after applying their byzantine loopholes. I believe the term is called, “working the ref”.

    • Lorie Emerson

      Slamfu- “Size doesn’t matter. Its what you do with it that counts.” Less than 15 seconds. 😉

  • dduck12

    Excellent article, thanks.

  • dduck12

    The big boys pay less, but the average business and S-Corps which constitute the bulk of taxpayers pay much more:
    “The result is an average corporate tax rate of just 12.6 percent, according to Government Accountability Office. That’s compared to the 31.6 percent and 29.4 percent that S corporations and partnerships pay respectively, according to the study.”
    http://www.huffingtonpost.com/2013/08/08/small-business-taxes_n_3727270.html

    • Lorie Emerson

      The SCorps and partnerships are usually pass throughs, so they aren’t paying corporate tax- they are paying at personal tax rates.

      • Slamfu

        I was just about to say that 🙂

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