The Complexity of Our Tax Code
THE COMPLEXITY OF OUR TAX CODE -- (House of Representatives - July 21, 2004)
The SPEAKER pro tempore (Mr. Bishop of Utah). Under the Speaker's announced policy of January 7, 2003, the gentleman from Maryland (Mr. Hoyer) is recognized for 60 minutes as the designee of the minority leader.
Mr. HOYER. Mr. Speaker, I want to say to the gentleman from Michigan that I was very interested in his remarks, and I agreed with a lot of his remarks. Where we would disagree is our responsibility is if we are going to buy things to pay for them. And I would say, with all due respect to my friend, for the last 40 months we have not been doing that.
We continue to buy and we are not paying. And that is why that half-a-trillion-dollar debt to which he referred has been accumulated, and this year it may be a little less or a little more, but I agree with his general proposition that we need to come together, and if we are going to buy, pay for it and not pass it along to future generations, because as the gentleman so correctly pointed out, if we incur debt today, it is inevitably taxes tomorrow.
It is, I think, appropriate that we transit from a discussion about the deficit that confronts us, the obligations confront us, and talk about the way we pay for what government is asked to provide.
Mr. Speaker, I am pleased to be leading this Democratic special order tonight on an issue that confronts millions of Americans every single year, the unbelievable complexity of our tax laws.
All of us, of course, bear some responsibility for the complexity of our Tax Code. Democrats and Republicans and every American, every American who believes that the tax preferences that he or she utilizes are worthwhile. Considered individually, the tax preferences that are part of the code, of course, can be rationalized: the charitable deduction, a very worthwhile effort; the mortgage interest deduction, which has provided for America being now one of the largest home-owning countries in the world, a good provision.
Collectively, however, they are a jumble of confusion that causes unfair results and has a corrosive effect on our democracy. As Paul O'Neill, the former Secretary of the Treasury, who is no longer with us, perhaps because of candor, said, "One of the unseen consequences of our Tax Code's complexity is the sense it leaves with taxpayers that the system is unfair and that others pay less tax because of special advantages."
A few facts, Mr. Speaker, illustrate the scope of the problem. In 1913, the Tax Code was a mere 500 pages. Today, the code and regulations total more than 60,000 pages. Four common forms: Form 1040 and Schedules A, B, and D take an estimated 28 hours and 30 minutes to prepare.
There is a lot of talk about simplification, but we have not moved towards simplification, and Americans are rightly frustrated. Americans are rightly angry about this annual challenge that they have to pay correctly the taxes toward supporting their government.
When the IRS started tracking this information in 1988, that is how long it took to fill out forms, the average paperwork burden was 17 hours, 7 minutes. Even the simplest form in the IRS inventory, the 1040EZ, now requires 3 hours and 43 minutes to prepare, up from 1 hour and 34 minutes in 1988. It is called EZ. There are a whole lot of Americans who do not believe it is easy.
Complexity costs more than $100 billion a year in accounting fees and the value of taxpayers' time to complete their returns. This is roughly equivalent, Mr. Speaker, to what we spend to run the Departments of Education, Homeland Security, and State. Think of that. The dollars that we spend to fill out our forms are equal to what it costs us to run the State Department, the Department of Homeland Security, and the Department of Education.
Not surprisingly, more Americans than ever rely on tax professionals, 56 percent, in fact, compared to 48 percent just 14 years ago, in 1990. But even tax professionals cannot guarantee accuracy. The General Accounting Office recently found that 2 million taxpayers who used a preparer took the standard deduction when they would have been better off itemizing. That says something about our system and perhaps something about preparers.
If the administrative burden does not convince people that the form is crucial, the crisis in noncompliance surely should. The IRS has estimated that there is a $311 billion annual tax gap due to underreporting, underpayment, and nonfiling, $311 billion owed but not collected. What does that mean? That means that somebody has to pick up that slack. Frankly, today nobody is picking it up because we have a deficit larger than that $311 billion, which means, as the gentleman from Michigan said earlier, that future generations are going to pick up that gap. They are going to pay that bill. And, in fact, all of us pay higher rates because too many pay not their fair share of that $311 billion.
In March, Nancy Killefer, the chairwoman of the IRS Oversight Board, told the House Committee on Ways and Means, "The IRS does not have the resources needed to accomplish its mission."
Let me repeat that. "The IRS does not have the resources necessary to accomplish its mission." What is its mission? To collect the revenues from each of us to pay for the government that we ask for.
John Kennedy said that taxes were the price of freedom. That is correct. We have established an agency to collect those revenues. Nancy Killefer says it does not have the resources to do so. She went on to say, "It continues to be out gunned and outmanned." By whom? By those who want to avoid paying their fair share.
That same month, Deputy Treasure Secretary Sam Bodman informed Congress that the IRS intended to walk away from more than 2 million delinquents tax accounts last year that total nearly $16.5 billion dollars.
What message does noncompliance and lack of enforcement send? What does it result in? For too many the answer is clear, that it may pay to cheat. In fact, an IRS survey found last year that 17 percent of taxpayers, nearly one in five, believe it is acceptable to cheat, up from 11 percent just 4 years earlier.
Now, just like the people who go into a store and they take something off the shelf, put it in their pocket and walk out and do not pay for it, guess who pays for that item? All of us who come behind and buy that product, because we build in the price of cheating.
Well, there is no difference here. While more people believe that cheating is acceptable, fewer and fewer face audits. In 2003, individuals were audited at a rate of 6.5 per 1,000 returns, and 75 percent of those were computer-generated, non-personal audits. Compare that to the audit rate of 12.8 percent in 1997, or even 9.9 percent in 1998, the year Congress passed tax reform legislation. Audits for business also are down, from three per 1,000 returns to two in 1,000 in 2003.
Mr. Speaker, if they caught only two speeders out of every 1,000 speeders, what kind of enforcement would that be? What kind of constraint would there be to stay within the law?
Leaders in the Republican Party have repeatedly proclaimed their commitment to tax reform and simplification. For example, the gentleman from Texas (Mr. DeLay), the House majority leader, stated in April 2001, "We are pushing forward with our campaign to reform the Tax Code. We are making it fairer, flatter, simpler and less burdensome to the American people." That is what the gentleman from Texas (Mr. DeLay) said in 2001.
But the facts, Mr. Speaker, clearly demonstrate otherwise. Since 2001, Republicans have made 227 changes to the Tax Code and added more than 10,000 pages to the code in regulations.
Mr. Speaker, I want the camera to go right to the end of my finger here. This is 10,000 pages. In 40 months, this is just ½ 0th of those 10,000 pages, 500 pages. That is the number of pages the Republican Party has added to the Tax Code and regulations in just the last 40 months.
Today on the floor, of course, we spent about an hour on tax simplification. Wonderful. By the way, in passing that tax simplification, we added more pages to its complexity.
We need to do better. We Democrats believe that we can do better, and we intend to do better.
Additionally, the Republicans propose another 109 provisions in the FSC ETI bill, the bill that tries to fix the problem found in unfair competition in the WTO, the trade scenario. So we passed a bill to solve a $4 billion problem that cost us $150 billion, which we did not pay $35 billion of. That is the party that wants to make our code more simple, less complex, fairer. It was a grab-bag of special interest provisions, just as most of these pages are as well.
Just today, our Republican friends considered two bills as part of their tax reform and simplification week. But let us be honest. As I said, they spent 40 months complicating the code. They devoted 40 minutes to making it simpler.
Today, there is an increasing momentum among taxpayers for real reform. Mr. Speaker, Democrats will take the lead on this issue when we regain the House majority in November. We are going to make it simpler. We need to defuse the middle-class time bomb. We talk about it, but we have not acted on it, the Alternative Minimum Tax, which is no longer serving its purpose, at least not as intended. We need to take a hard look at looking toward a return-free income tax system, simplify tax rules for small businesses, stop individuals and corporations from gaming the system and reform international tax laws that encourage American companies to move jobs overseas.
The American people, Mr. Speaker, are acutely aware of the unnecessary complexity and dire need for real tax reform in America today. We Democrats have been talking about that. When we are in charge, we are going to do it, not talk about it, as our friends in the Republican Party have done.
The American people need, the American people deserve, a tax system that is simpler, fairer and more efficient.
I want to look at some of these quotes.
Newt Gingrich, 1997: "So we want to move towards a simpler Tax Code that takes less time to fill out, that is easier for the American people." 10,000 pages since that time, and, indeed, more, added to the Tax Code.
President Bush, March 17, 2001: "Americans want our Tax Code to be reasonable and simple and fair. These are the goals that unite our country, and these are the goals that have shaped my plan."
My plan? My plan? What plan? There has been no plan submitted to the Congress of the United States. There is no plan in front of the Committee on Ways and Means to which the President referred. There has been no simplification. There has just been these 10,000 pages of additional special interest provisions added to the code. No plan, Mr. President. But, then again, you only said that 40 months ago.
The gentleman from Texas (Mr. DeLay), a month after the President said his simplification plan was on its way: "Because of the Tax Code's mind-numbing complexity, millions of hard-working men and women waste countless hours every April. We are pushing forward with our campaign to reform the Tax Code. We are making it fairer, flatter, simpler and less burdensome to the American people."
10,000 pages have been added to the Tax Code since the gentleman from Texas (Mr. DeLay) said he was bringing us a fairer, simpler Tax Code.
John Snow, the Secretary of the Treasury, this year: "The administration has made tax simplification a priority, and we look forward to working with Congress to achieve it. A simpler code is something we owe honest taxpayers, and the worst thing of all for the tax cheat."
Amen, Mr. Secretary. Where is the plan? Nobody here has seen it. Is it in the Treasury Department? Is it in the White House? Or perhaps it is on its way down Pennsylvania Avenue. Where is the plan?
Lastly, Scott McClellan, the President's Press Secretary: "The President is committed to making the Tax Code more simple and fair." February 2004.
No plan, no fairness, no simple plan. 10,000 additional pages.
I now would like to yield to some of my colleagues to speak on particular aspects of how we can make this fairer, simpler and a better code.
I yield to my friend the gentleman from Georgia (Mr. Scott), a new Member of Congress, but a veteran of 20 years in the Georgia Senate and one of our most able legislators.
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Mr. HOYER. Mr. Speaker, I thank the gentleman for his comments and for the passion that he brings to the effort to make this a simpler, fairer Tax Code for the welfare of our people, for small business, and all of those who must comply with a system that has become extraordinarily complicated.
Mr. Speaker, I yield to the gentleman from Washington (Mr. McDermott), a senior member of the Committee on Ways and Means.
Mr. McDERMOTT. Mr. Speaker, I thank the gentleman from Maryland. This is an auspicious night tonight. The President had a dinner downtown and raised $25 million from some of his closest friends. In the recent motion picture, in talking to them, he said, some people say you are the elite, but I say you are my base.
Well, we ought to talk about this man's base.
Mr. HOYER. Mr. Speaker, if the gentleman will yield, is that the movie in which the gentleman from Washington (Mr. McDermott) starred?
Mr. McDERMOTT. Mr. Speaker, since 1994, when the Republicans created a Contract With America and said that they would pull the Tax Code up by the roots and simplify it, this TOM DELAY Congress and its tax-writing committee have added another 10,000 pages, which the minority whip has already pointed out, and lowered taxes on the most affluent among us. Over the past 3 years, the Congress has watched 1 million jobs disappear, and what has it done? Well, first the Congress passed out lavish tax breaks to the millionaires so that they could send more money to Wall Street. Second, the House of Representatives sent the chairman of the Committee on Ways and Means to Europe. While he was there, the Europeans said, because of the WTO's ruling, you Americans need to change your tax structure to make it easier for European products to compete with American ones. How did the chairman of the Committee on Ways and Means respond? He told the Europeans he would like to help them out, but that they should impose tariffs on the American products first to get our attention. He thought that if they hit us, he could get something through the House.
Today, Mr. Speaker, the Europeans are imposing a 9 percent tariff on American products exported to Europe, our largest trading partner. These tariffs apply to some of our most sensitive products like agricultural goods that come from all across America, from Florida and from the Midwest. The Europeans are imposing tariffs on paper and wood products that come from the Pacific Northwest and from the American south. Just last month, to appease the Europeans, the House and Senate passed a bill to hike up taxes on U.S. companies who export American-made products to foreign markets. At the same time the House and Senate lowered taxes for U.S. companies that operate offshore.
And what do other Republican leaders have to say about this? Well, the chairman of the Committee on Rules came out here a few weeks ago and said he was happy that European tariffs were imposed, he was happy that this Congress was raising taxes on U.S. firms that operate in America, and he was happy that we were lowering taxes for U.S. firms that operate offshore. Check the Congressional Record, Mr. Speaker. My colleagues will find I am right. This is not hyperbole. I am not making this up. This man stood right over there and said it. This is the official RECORD as recorded by the House Clerk.
Mr. Speaker, our tax structure is one of the most competitive in the developed world. Our effective corporate tax rate is among the lowest in the developed world. Let me say that again. Our effective corporate tax rate is among the lowest in the developed world. Only 2 nations have lower effective tax rates than ours.
Furthermore, Mr. Speaker, despite the fact that we currently tax U.S. firms who operate overseas at a lower tax rate than those who operate on our own shore, the Republican Party has pushed through legislation in the House and Senate to again lower the tax rate that U.S. firms operating offshore will pay.
This country has lost 1 million jobs, and many of those were lost because they simply moved offshore. It is cheaper to operate over there. That is why they went, and the tax structure is set up so that it is cheaper for companies to move offshore and leave the American worker behind without a job.
The Republican Party's response to an increasingly connected global economy has been to make our Tax Code more complex and to lower taxes for U.S. companies that decide to move their operations offshore.
When is the Republican Congress going to do something right and something fair for the American people, Mr. Speaker? When is the Congress going to reform the Tax Code so U.S.-based firms are not put at a competitive disadvantage, compared to U.S. firms that move overseas?
Since the Republicans took control of the congressional tax-writing committee on which I sit, U.S. firms have moved overseas, Americans have lost their jobs, and we spend more time than ever trying to figure out our taxes, because of the 10,000 pages they have added.
Since the Republicans took control over the Department of the Treasury, the Federal Government finds itself in annual an $500 billion deficit. Now, that is real fiscal responsibility. We borrow nearly $500 billion every year from foreigners, from the Chinese, from the Saudis, from the Swiss. We are in hock to half the world.
Does the Republican Party expect to control the Congress based on this record over the last decade, Mr. Speaker? If they do not make some changes pretty quick, and those 2 silly bills they brought out here today did absolutely nothing to simplify; all they were was a piece of paper that said "tax simplification" across the top and the body of the text did nothing, nothing. There is not a single person in this country that will have an easier time on the 15th of next time because of the silly bills they passed out of here today.
Luckily, we only have 105 more days to suffer under these people. We are going to have a change when the Democrats take over this place.
Mr. Speaker, I commend the gentleman from Maryland for bringing this issue up and bringing it out here. It is late at night, but it is an issue that affects every single American, and the American people ought to know that we are thinking about it and want to change it.
Mr. HOYER. Mr. Speaker, I thank the gentleman from Washington State, a member of the Committee on Ways and Means, for his remarks. And then that, of course, as the gentleman points out, is the purpose. The tax simplification purpose of ours is not going to be just tonight, it was not just 3 days ago when I gave a statement to the press and to others; it is a commitment that we have for all Americans to make this a fairer, simpler system for them and their families, and for every small businessperson in America so that they can feel that we are not placing an extraordinary burden on them.
Paying is burden enough. Complicating the system and causing them hours and hours and costs to comply is too much for them to expect, and we need to change it, and we Democrats are going to change it. I thank the gentleman from Washington for his remarks.
I now am pleased to yield to the gentleman from Illinois (Mr. EMANUAL), who has been very involved in our efforts to focus on tax simplification and who is a leader in this effort.
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Mr. HOYER. Reclaiming my time, I want to thank the gentleman from Illinois (Mr. Emanuel) for his contribution tonight, but more importantly, for his contribution to spurring the effort of tax simplification and tax fairness for middle-class Americans, but I would suggest to him that those families, of course, cannot site an offshore post office box and therefore avoid taxes. But to some degree, we ourselves have created 10,000 pages in which Americans normally look to how do I reduce my obligation in taxes. That is a normal thing for people to do, and the fact that we have made it so complicated allows some people to take advantage of loopholes that perhaps were not contemplated but exist; and the unfairness then is not only to our working-class, middle-class families but also to those competitors of theirs who do not take advantage of those loopholes, who keep jobs in America, who are paying their fair share of taxes here in America.
So tax fairness is not only tax fairness in terms of middle-class taxpayers but, frankly, all taxpayers so they can have the confidence that their liability based upon the income that they make will be proportionately the same as their competitor, as their fellow citizen.
Mr. Speaker, I now yield to another member of the Committee on Ways and Means, extraordinarily able member of our caucus, who does an extraordinary job in focusing on fairness to working families, the gentleman from Texas (Mr. Sandlin).
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Mr. HOYER. I thank the gentleman from Texas (Mr. Sandlin) for his comments and very important observations.
Clearly he is correct. We need to not talk about simplification; we need to do simplification. We need to do fairness so that the American public is better served by their system and better able to support themselves and their families.
Mr. Speaker, I yield to the gentleman from Texas (Mr. Gonzalez), a member of the very important Committee on Energy and Commerce.
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Mr. HOYER. Mr. Speaker, I thank the gentleman for his comments and his very important contribution to this discussion.
In closing, let me say that we are committed to working, not only on our side of the aisle but working with our Republican colleagues as well, towards simplifying this code, making it fairer, reducing these 10,000 pages so that the anomalies of which the gentleman from Texas just spoke in terms of the deduction for the Hummer and for the Porsche will not make our tax code unfair so that the average working American who goes to work every day, and as Bill Clinton said, plays by the rules, will not have an undue tax burden placed upon them because so many others take advantage of one of the loopholes included in these 10,000 pages and do not pay their fair share.
That is not fair. That is not good tax policy. That is not good for America. So we are pledged as Democrats, as Americans, as Members of this House sent up by our neighbors here to represent them, to work unceasingly and tirelessly on making this code simpler, making it fairer, making it more efficient, making for a better code, a better America.