The Department of the Treasury has just released a list of 300 tax regulations to eliminate. This is an overdue and commendable effort to clear out the regulatory cobwebs that hang throughout the tax code, and is part of a broader move to simplify the tax system that Trump administration officials have undertaken. They would likely be the first to agree, though, that there are still plenty of spiders lurking in the law that need to be confronted.
Treasury initiated its review of the federal tax code following an executive order issued last April. Each agency was directed to set up a regulatory reform task force to identify regulations that inhibit job growth, are outdated or unnecessary, impose costs that exceed the benefits, or are inconsistent with the administration’s regulatory reform initiative.
Treasury’s list of 300 regulations to eliminate generally fall under the “outdated or unnecessary” category. The first batch of regulations interpret provisions of the Internal Revenue Code that have been repealed, including two that were stricken as far back as 1940. Several additional regulations on the chopping block pertain to parts of the code that have since been significantly revised, making them obsolete. The remainder are no longer applicable since they’re connected with statutes that were temporary, have expired, or provided transition rules for specific periods in the past.
Cleaning up these obsolete regulations will have a small impact on reducing complexity for those who struggle to make sense of the tax code. While average taxpayers would probably not notice any significant changes resulting from this, it is nevertheless a worthwhile exercise, especially when considered in the context of other steps the administration has taken.
Prior to passage of the first tax reform in more than 30 years that reduced tax burdens and helped to lower some compliance costs, President Trump signed another executive order last June to “reduce the burden existing tax regulations impose on American taxpayers and thereby to provide tax relief and useful, simplified tax guidance.”
This tasked the Treasury Department with a review of all tax regulations that were issued during President Barack Obama’s final year in office. Pursuant to those instructions, Treasury announced that it was withdrawing eight regulatory proposals, including an administratively onerous estate tax valuation rule that could have hit family-owned businesses especially hard with new planning costs. Also scuttled was a regulation that would have expanded the Internal Revenue Service’s authority to hire outside contractors to essentially help conduct examinations of taxpayers — a dramatic departure from past practices, in which the tax agency generally employed non-government lawyers as expert consultants for certain cases.
Treasury has made important strides on the tax administration front, but it still has work to do to eliminate or reduce remaining complications for taxpayers. Onerous burdens are in store for U.S. taxpayers living abroad through the Foreign Account Tax Compliance Act, and agency proposals to impose duplicative regulations on tax preparers could lead to fewer choices for taxpayers seeking assistance with filing. Treasury also needs to be ready to respond to heavy-handed and discriminatory tax collection schemes that foreign countries, especially in the European Union, are seeking to employ against U.S. businesses operating overseas.
Cutting out these cumbersome rules will trim down the thousands of pages of tax regulations. Not to be forgotten are steps Treasury and the IRS can take to ensure taxpayers realize the full benefits of the recent reform law.
A soon-to-be-unveiled online withholding calculator, along with encouraging more Americans to take advantage of a larger standard deduction that permits a shorter tax form, are just two ways to prevent complex rules from reaching too deeply into the tax filing population. But the fact that so many of the targeted provisions have managed to linger in the federal registry for so long shows that a more regular review process is needed to keep the tax code in check.
A similar procedure in place for the military provides a model. Every four years, the Pentagon produces a comprehensive review of its strategic objectives and potential threats. A similar Quadrennial Commission on the Tax Code would review the laws line-by-line, drawing on the experience of tax administrators and private-sector experts. This concept of a public-private partnership for simplicity was discussed by the National Commission on Restructuring the IRS in 1997, but never acted upon. The concept could be updated by requiring that the package of reform recommendations be brought before Congress for an up or down vote. A permanent, ongoing system like this would help keep the code clean and protect taxpayers from creeping and unnecessary complexity.
Demian Brady is a contributor to the Washington Examiner’s Beltway Confidential blog. He is director of research at the National Taxpayers Union.
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