Like a great fungus or diabolical virus

Posted: Thursday, January 18, 2001

NEW YORK (AP) -- A cut in taxes as proposed by President-elect Bush might save taxpayers $1.3 trillion over a 10-year period. A cut in tax code verbiage conceivably could save billions more.

From 1990 to 2000, per-capita payments to the federal government rose 35 percent, or $2,709, according to the Tax Foundation.

Tax cuts have a very noticeable dollar impact on the public. But the decade-long dollar cost of complying with a tax code that defies the genius of the most powerful computers is in the many billions of dollars.

Foundation calculations show that in 1955 the entire tax code measured 409,421 words. In 2000, it had grown to 1,669,514 words. The number of sections grew even faster, from 103 in 1954 to 725 in 2000.

Size and complexity are only parts of the problem. Instability is a problem by itself. The code keeps changing: The foundation estimates that on average, every section is amended once every 1.4 years.

The cost in time consumed, disputes, business plans delayed by uncertainty, and expenses incurred in hiring specialists can hardly be calculated. Estimates of annual compliance costs are in the billions.

Tax Foundation economist Scott J. Moody says the accretions and deletions are especially difficult for small businesses, which he defines as companies with less than $1 million in assets, or 90 percent of all U.S. corporations.

Such companies, he says, spend far more on compliance as a percentage of assets than the largest companies. The largest companies also have an advantage by employing full-time, in-house tax specialists and attorneys.

Adding to small-business frustration, Moody told the House Committee on Small Business last year, the small-business compliance effort ''is essentially for naught from a public finance point of view,'' since the very largest companies pay more than 75 percent of corporate tax revenue.

Adding to the woes, he said, is that disputes often spill over into the tax courts, where ''typically it takes three years to appear on court dockets.'' And where, incidentally, the rules may be re-interpreted.

Strangely, while the situation worsens, it has few defenders. For Internal Revenue Service personnel it means as many headaches as for the public. And IRS commissioners have regularly sought simplification.

Congress too has made attempts, but when it creates changes -- ironically, often to adjust some inequity -- it inevitably adds a dimension of confusion, and maybe more words, sections and subsections.

Moody's conclusion: ''We must not stop agitating for a simpler tax code with reasonable rates that raise the income the government needs -- no more and no less.''

Short of overhauling the entire tax system, he says, Congress must strive for code stability, and tax writers and regulators must seek simplicity.

But when you think of it, that's what code-cut advocates have been saying all along. The harder they try, the worse it gets.

Like a diabolical computer virus, the thing seems to have has a life of its own.

End Adv PMs Tuesday, January 16.



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