Senate Finance releases tax simplification options

The Senate Finance Committee released a series of options to potentially make the tax code simpler, as the panel continues to push forward with its tax reform efforts.

In its first paper detailing tax reform options, the Finance Committee says its options could help roll back the amount of time people spend complying with the massive U.S. tax code and reduce the difference between what taxpayers owe and what they pay — the so-called tax gap that was last estimated to be some $385 billion.

But the paper also illustrates the significant challenges that the tax-writing committee faces as it tries to overhaul the tax code, even though there may be more common ground between Democrats and Republicans on simplification than on other big-ticket tax issues.

The nine-page draft, for instance, stresses that neither Finance Chairman Max Baucus (D-Mont.) nor the panel’s ranking member, Sen. Orrin Hatch (R-Utah), necessarily endorse the listed proposals.

And the paper also notes the party’s vast differences on whether the government should collect more revenue, at the same time that the two parties are debating budgets that lay out long-term tax visions.

“Members of the Committee have different views about how much revenue the tax system should raise and how tax burdens should be distributed,” the paper says.

“In particular, Committee members differ on the question of whether any revenues raised by tax reform should be used to lower tax rates, reduce deficits, or some combination of the two. In an effort to facilitate discussion, this document sets this question aside.”

The National Taxpayer Advocate, an in-house watchdog at the IRS, has for years said that the tax code is long overdue for a rewrite, calling it too complex and, at four million words, too long.

Nina Olson, the advocate, has also warned against cutting the IRS budget, saying it would impede the agency’s abilities to collect revenues.

In their paper, Senate Finance also discusses the rising problem of taxpayer identity theft, and the knotty issue of whether the IRS should increase its regulation of tax preparers.

The simplification options provided by Finance include getting rid of the Alternative Minimum Tax and other complex tax provisions, like the personal exemption phase-out and the Pease phase-out of itemized deductions that were just reinstated in the "fiscal cliff" deal.

It also calls for a more streamlined system of tax deadlines, and ways to make voluntary tax compliance simpler.

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