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Tax advocate: Simpler is better
Tax form with pencil pointing to "Amount you owe"
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TEXT OF INTERVIEW
Tess Vigeland: Taxes are hard and no fun at all. But you've got to pay attention and pay up.
That goes double if you're the nominee to be U.S. Treasury Secretary overseeing the Internal Revenue Service. But Timothy Geithner ran smack into the tax man this week. Turns out he failed to pay Uncle Sam some $34,000.
But really, who hasn't gotten confused by all the forms and rules and receipts and, well, now I have a headache just thinking about it. So, apparently, did the National Taxpayer Advocate Nina Olson, who recently issued her annual report on the tax system and found it Tinman-ish in its lack of heart. Ms. Olson welcome to the program -- and may I ask how long it takes you to do your taxes?
Olson: I use a software program, and it took me about a day to gather all the paper up. And, you know, once I was in the software program it was fairly easy. But then I wanted to check it, and that took more time. I don't trust things.
Vigeland: So you would be among the people who, your office, you know, says would really like the IRS to simplify things?
Olson: Yes. I definitely want the IRS to -- well, it's not just the IRS. I want Congress to simplify the Internal Revenue Code, because the IRS actually has no control over what the law itself says. They do have control over how they administer the law.
Vigeland: I feel like I've been hearing this call for as many years as I've been doing taxes. Got to simplify it. Why doesn't it get done?
Olson: Well, I think there are a number of reasons. Right now the predominant reason is the existence of the Alternative Minimum Tax. Now what's happened over the years is it's pulled in more and more people, because some of the parts of the calculation haven't been adjusted for inflation. And the result is that by 2010, they're going to be 33 million taxpayers that will be impacted by the Alternative Minimum Tax.
Vigeland: How much of this is about, kind of, the rules themselves, and how much of it is the paperwork?
Olson: Well, I think that it's hard to separate out whether the rules drive the paperwork, or you get into paperwork for the sake of paperwork. We've talked about complexity of the tax code before in our annual reports that we give to Congress every year. Every form that the IRS produces, we're required by law to give an estimate on how long it would take to prepare that form. And we calculated that overall, each year, it takes about 7.6 billion hours to do those forms. And then if you take a full-time worker, how many hours that worker would work in a year, it would take 3.8 million full-time workers to work those 7.65 billion hours.
Vigeland: You also, in your recommendations, talk about the number of tax breaks that there are out there for education and retirement. Now, everybody likes tax breaks. What's the problem with them?
Olson: When I talked to the Presidential Tax Reform panel, I said -- one of the things I said to them -- as a general principle choice is good, but too much choice is paralyzing and confusing. And I think that's what we've got here in both the education incentives and the retirement savings incentives. You have 11 education incentives in the code. And with the retirement plans there are 16 such vehicles. That's just too much for people.
Vigeland: Let's talk a little bit about one of the other recommendations that you've made this year, which is perhaps the IRS might want to try to consider a taxpayers' financial plight before levying some sort of penalty or lean. What options do IRS agents have right now and how could that change?
Olson: Well, the IRS has a lot of options on the table, particularly in the collection realm. We have the ability to put taxpayers into installment agreements. They also can enter into what's called an offer and compromise. And what that says is even if the taxpayer made all the payments under and installment agreement, they still wouldn't pay the amount due. So we say, pay us what we think we could collect, whether it's immediately or over a period of years. We will forgive the rest of the debt.
Vigeland: So there are alternative options out there, but I don't think in general that people would characterize the IRS as a compassionate organization. I mean, are employees there empowered and trained to use these options?
Olson: That's the problem. The IRS writes rules and likes to do things a lot in an automated format. And wants taxpayers to fill out forms and send in all sorts of information up front. And it becomes daunting to the taxpayer, and they give up. And so taxpayers don't avail themselves of some of these alternatives. And the IRS puts barriers up, I believe, you know, for taxpayers getting some of these things.
Vigeland: Nina Olson is the National Taxpayer Advocate, and if I may be so presumptuous on behalf of the American people, thank you and we "heart" you.
Olson: Thank you.
About the author
Tess Vigeland is the host of Marketplace Money, where she takes a deep dive into why we do what we do with our money. Follow Tess on Twitter @radiotess
Sure Ms. Olson has talked about the IRS’s shortcomings, ruffled a few feathers, and wrote some tough reports. Unfortunately, Ms. Olson has not been able to get very much accomplished in her seven years on the job other then create a high employee turnover rate. She tried to simplify the tax code by creating a standard definition of a child. When all was said and done, she only made matters worse. So much worse, the law had to be amended.
Ms. Olson also destroyed the very program in the IRS that was set up to assist taxpayers. Before Ms. Olson, if you needed help with a tax problem that was not dealt with satisfactorily through normal channels the IRS would transfer your case over to a group that had the experience in your particular issue and the authority to fix your problem on the spot. Ms. Olson has forsaken this logic. Now if you need help and your case is transferred over to her program it will most likely be assigned to someone that is not experienced or even properly trained to assist you. Moreover, even if the employee understands your situation they will not be able to fix it. They will have to turn around and request the IRS to fix it. Not only is this a poor way to assist taxpayers it also costs taxpayers more money.
The Taxpayer Advocate’s office has an important role of advocating for all taxpayers. While Ms. Olson does an adequate job of this, she does not advocate very well for the individual taxpayer who comes into her office for assistance. For that reason, her employees that work with taxpayers should be reassigned back to the IRS where they will be better trained and better able to quickly assist taxpayers in their moment of need.
As far as the IRS is concerned, I believe the fairest income tax system would be a progressive tax with NO DEDUCTIONS. Every time you give some entity a deduction, everybody else has to make up for the loss of tax income. No matter how good it sounds,in each instance everybody else is subsidizing the deduction. Even the two most popular deductions aren't fair. Say you want to have 4 or 5 children, childless people now pay for your deductions. People with house mortgages are subsidized by renters to pay their mortgage interest. My proposal would be to have people making $5,000 pay 1%, and people who make over 1 billion pay 99% of everything over a billion. Let the experts figure out what everybody else pays. Why should Congress decide who pays and who doesn't. This is a capitalist system, let the market (people) decide. A side benefit would be the elimination of a huge bureaucracy (IRS arbiters, tax lawyers, accountants).
