IRS Commissioner on the Future of Taxes

Earlier this month, IRS Commissioner Douglas Shulman spoke about the income tax system and how he would make the annual tax filing ritual easier. He did express concern about increasing tax complexity, driven by a flurry of annual changes made by Congress to the tax code.

For example, he said that a major flaw in the system is that the IRS deals with fraudulent claims sometimes years after the fact of the actual incident. Some of these cases involve actual fraud, while others are merely accidents. Whichever is the case, taxpayers often feel shocked when the IRS gets around to disputing their return. Shulman hopes spending money on more sophisticated risk models and getting the IRS greater and earlier access to W-2s and 1099s can correct this. Balancing this against compliance burdens is the key.

One idea that often gets suggested are “Ready Returns,” whereby the IRS would send pre-filled-out tax returns to Americans for corrections. Shulman hinted at that as his preference, noting that the agency would need to boost its $12.1 billion budget and 100,000 employees to do it. Ready Returns has the benefit of being both expensive and a non-solution to the problem: the tax code is too complex, with too many special deductions, credits, exemptions, phaseouts, phaseouts of phaseouts, worksheets, schedules, and regulatory rulings. That complexity and the costs associated with it would be masked by Ready Returns, but would still be there.

We could either spend on the IRS to make filling out taxes easier, or we could simplify the tax code and actually make the system easier while using fewer resources on compliance and administration.

To watch IRS Commissioner Douglas Shulman’s speech at the National Press Club, click this link.