Internal Revenue Code Turns 23 Today

October 22, 2009

From the Tax Update Blog:

Today is the 23rd anniversary of the Internal Revenue Code of 1986, enacted when President Reagan signed the Tax Reform Act of 1986 into law.

At the national firm I worked for then, we were preparing a big client seminar on the tax reform. We got our first copy of the actual legislation only days before we were to go on, and we literally ripped the book into sections so each presenter could study the portion they were planning to discuss (I got the passive loss rules).

Ripping the current incarnation of the IRC into pieces is a recurring daydream of mine. Twenty-three years after the ’86 “simplification” where are we? Tax complexity and the accompanying economic distortions have risen steadily thanks to an unending supply of unrelenting special interests and lawmakers eager to please. A few years ago, on the 20th anniversary of the ’86 reform, Tax Foundation Senior Economist Gerald Prante had this to say about why lasting tax reform is so difficult to achieve:

Why have politicians taken the stance that they would rather have tax deductions whose benefits are narrow rather than a broad-base, low-rate tax system that would benefit everyone and promote economic efficiency?

The simple answer is that special interests benefit heavily from narrow tax deductions and exemptions, even though the average taxpayer only benefits marginally. Therefore, while the overall benefits to society from overhauling the tax code would be significantly greater than the benefits of maintaining the status quo-the special deductions and complexity that permeate our tax system-special interests have a much greater incentive than the average American to lobby Congress on this issue.

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