Want A Simpler Tax Code? Sure, But It Will Cost You.

The GOP is taking advantage of Americans’ fear of tax season to shift the tax burden down the income ladder.
Carlos Barria / Reuters

WASHINGTON ― House Speaker Paul Ryan clears his desk with the sweep of his arm, illustrating all the clutter that would disappear from the tax code. President Donald Trump shows off a postcard-sized tax return.

“It’s going to make life very simple,” Trump pledges, kissing the postcard for emphasis.

Such is the promise: Filing taxes will become much simpler – a pitch that finds a ready audience among Americans who view IRS Form 1040 with fear and loathing.

An unadvertised side effect of this simplicity: The proposed tax plan moving through Congress disproportionately benefits the wealthy, shifting the tax burden down the income scale toward middle- and working-class taxpayers.

And that, say critics of the plan, is kind of the point.

“When Republicans say simplification for low-income households, they mean tax increases,” said William Gale, a senior fellow at the centrist Brookings Institution. “When they say simplification for high-income households, they mean tax cuts.”

Of course, if the country truly wanted a simpler tax code, it could accomplish this by eliminating the income tax altogether – and replacing it with a “value added tax” on consumption. Doing so, though, would swap a structure that asks wealthier people to pay proportionally more with a system that hits the poor the hardest.

The proposal Republicans are pushing now, while not that radical, exhibits some of that same pattern, Gale said.

In the name of simplification, the Republican tax proposal eliminates the “alternative minimum tax,” which hits wealthier taxpayers whose itemized deductions might otherwise completely wipe out their tax liability in any given year. Simplification also is the stated purpose of eliminating deductions used to offset state and local taxes, a change that will increase federal taxes for residents of higher-cost parts of the country.

Trump and Republican congressional leaders also tout the reduction in the number of tax brackets – even though the use of IRS published tax tables or tax software makes that change irrelevant.

“It doesn’t matter if there are 100 brackets or one,” said Len Burman, a co-founder of the non-partisan Tax Policy Center and a former Treasury Department economist.

Nevertheless, the “simplification” argument continues to resonate with average Americans, according to polling, even though most people whose income derives solely from wages already have fairly uncomplicated tax returns.

“You could put the current form on a postcard right now, if you move most of the calculations to worksheets,” Gale said.

Despite this, more than half of Americans take their tax returns to an accountant or a tax-filing service such as H&R Block.

Gale said much of this is because people are afraid of making a mistake on a form going to the IRS, but added that some is because they just do not want to be bothered with it. “A lot of people don’t mow their own lawn. It’s not complicated. They’d rather spend their time doing something else,” he said.

Yet in the case at hand, Burman said, simplification is not the true aim but more of a fig leaf.

For example, Congress could implement a system in which the IRS, using tax documents it already receives from employers and banks, generates filled-in forms for most taxpayers and then sends them out for their review and approval, he said.

“Radical simplification would be possible. But this bill is not radical simplification, regardless of how may props they use,” Burman said.

The priority of lowering taxes on so-called “pass-through” businesses ― whose owners report their income on their individual returns, rather than filing a separate corporate tax return ― will dramatically complicate the tax code to prevent highly paid employees from redefining themselves as contractors to take advantage of the lower rates, Gale said.

“They’re going for lower taxes on pass-throughs, even though it’s going to make it a lot more complicated,” he said. “That’s a perfect example of giving up simplification to get a tax cut.”

And, in the end, the insistence on large tax cuts for corporations ― which are disproportionately owned by wealthier shareholders ― as well as individual cuts skewed to favor the wealthiest will renege on an earlier promise Republicans made about their tax overhaul.

“We are committed to making sure the tax code is at least as progressive as the existing tax code, that it does not shift the tax burden from high-income to low- and middle-income taxpayers,” a senior administration official said the day before Trump’s speech in September unveiling the tax plan.

According to the analyses from the Tax Policy Center and Congress’s own Joint Committee on Taxation, the GOP plan does precisely that.

“Yeah, they somehow missed on that goal,” Burman said.

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