National Taxpayer Advocate is a fan of major tax system overhaul

The list of folks supporting a major overhaul of the U.S. tax system got a little longer this week.

In her annual report to Congress, National Taxpayer Advocate Nina E. Olson cited tax reform as the number one priority in tax administration.

Research by the Taxpayer Advocate Service found that individual taxpayers and businesses spend 6.1 billion hours a year complying with tax-filing requirements. Put into dollar terms, the financial burden on the typical taxpayer comes to $258 annually.

"There has been near universal agreement for years that the tax code is broken and needs to be fixed," Olson said in releasing the report. "Yet no broad-based attempt to reform the tax code has been made. This report documents the burdens the tax code imposes on taxpayers and explores why many taxpayers may nevertheless feel wedded to key aspects of the current system, undermining efforts at reform."

More calling for tax reform: Olson is the latest public figure to come out for tax reform. In December, Obama's hand-picked National Commission on Fiscal Responsibility and Reform, aka the deficit reduction panel, suggested several ways to remake our tax system.

The method preferred by the panel's two chairmen is the Zero Plan. It would dramatically lower individual and corporate tax rates, but to do so would mean the end of popular and entrenched tax breaks, such as the deduction for mortgage interest.

Predictably, the reaction to the panel's proposal was quick and fervent opposition from industry groups and lawmakers alike. That negativity, plus the year-end focus on expiring tax cuts, pushed tax reform talk off the legislative agenda.

However, Obama reportedly is still interested in overhauling the U.S. Internal Revenue Code.

Olson's report, along with a new group of not-yet-so-beholden to lobbyists legislators in the new 112th Congress, just might jump start the discussions.

We have met the special interests and they are us: Olson acknowledges that tax reform will be difficult, in large part because, despite my jab at special interest peddlers who stalk Capitol Hill, all of us individual taxpayers have our own tax axes to grind.

"The dirty little secret is that the largest special interests are us, the vast majority of U.S. taxpayers," said Olson. "Virtually all of us benefit from certain exclusions from income, deductions from income or tax credits."

She concurs with the deficit panel's finding that the only realistic way to substantially lower tax rates is to eliminate existing tax breaks, some immediately and others phased out over time.

"But I believe most taxpayers will conclude this is a worthwhile trade-off," said Olson. "If tax reform proceeds on a revenue-neutral basis, the average taxpayer's liability will not change, and we will end up with a tax system that is simpler, more transparent, and easier and cheaper for taxpayers to navigate."

A lot of folks say they want just what Olson is talking about. But walking the walk is a lot harder than talking the tax reform talk, especially if one of your preferred tax breaks is on the immediate chopping block.

Talk to the Taxpayer Advocate: In conjunction with the release of the annual report, the National Taxpayer Advocate's office also launched a website seeking taxpayer suggestions on tax reform.

"What would taxpayers be willing to give up if they knew that others are giving up their breaks and the end result would be a much simpler system?" Olson asked. "What particular provisions of the existing tax system are especially burdensome or seem particularly unfair?"

Tell Olson and her staff your thoughts on tax reform at the special tax reform comment page. The Taxpayer Advocate Service promises to periodically post tax reform results.

And feel free to leave your tax reform comments here at the ol' blog, too.

Related posts:

• Up next for Obama: Tax system overhaul
• Debt panel suggests major tax changes
• Deficit commission tax overhaul, take 2
• Taxpayer Advocate mid-year to-do list (2009)
• Improve the IRS!

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Comments

[Property tax reform]

Providing property tax relief has been a staple of gubernatorial and legislative campaigns for years, but successive administrations and legislatures have been thwarted and frustrated in efforts to achieve significant progress.

[Tom Beebe]

Could a simple plan replace our lengthy tax code, Social Security, Medicare, Medicaid, state taxes and welfare, all while promoting wealth creation, and thus a growing tax base, by aid to helth care, education and investment? Impossible? Of course, except maybe..........

1. All persons residing in the U.S. shall come together in households for the purpose of reporting all income from any source, each item to be identified by payer's and payee's tax number. Members of a household need not be related, need not reside together, and a household may consist of as few as one person.
2. Each year congress shall set by legislation a "minimum wage" and a "tax rate".
3. The following income shall not be subject to taxation:
• An amount equal to a year's earnings at the minimum wage rate, for each adult (age 20-65) member of the household, decreasing 10% per year to 50% at age 15 and increasing 10% per year to 150% at age 70.
• All payments for what is classified as necessary health care for all members of the household including medical care, any pharmaceuticals prescribed by a recognized health care professional, vision and hearing aids, and membership fees for health-enhancing entities such as gyms or other exercise facilities. Health care insurance premiums may be deducted but not health care expense paid for by such insurance.
• All educational expenses including day care for young children or legally incompetent persons, that portion of state and local taxes identified as spent on education, that portion of parochial school tuition, fees and other expenses identified as going for non-sectarian education, tuition, fees and educational materials for private school education at any level, and a per-diem allowance for students traveling more than 50 miles from primary residence for education.
• All income saved into an identified account from which investments may be made.
4. The "tax rate" shall be applied to any income over and above the deductions listed above, regardless of amount.
5. There shall be no federal tax on corporations or other business entities.
6. The Office of Management and Budget shall compute revenues to be expected using the newly set tax rate and minimum wage, applied to the previous year's reported incomes. No expenses in excess of that amount may be authorized or made by the federal government without approval by 75% of each house of Congress.
7. At the request, by legislation duly enacted by a municipality having greater than 100,000 inhabitants or a state, a surtax may be imposed on citizens of that municipality or state which shall be applied in a manner exactly as applied for the Federal tax.
8. For households whose deductions exceed total income, the Federal Government shall make payment equal to the tax rate multiplied by the shortfall in income, as shall municipalities and states.

Of course it's impossible; it doesn't help any special interest. Can you fix this? Send comments to [email protected]