Ideas. Action. Results.

New Report Calls for Administrative Improvements to U.S. Tax System

Monday, April 8, 2019

Washington, D.C.– Every year, U.S. taxpayers incur a compliance burden in excess of $200 billion for a system that is too complex. Yet the system is also too easy to game or evade, producing an estimated gap of $406 billion in annual underpayments. Proper administration of the tax code is essential to the long-term health and integrity of the system.

The Bipartisan Policy Center released a new report today addressing several challenges to administering the U.S. tax code efficiently and fairly.

“The broad goals of tax administration are not controversial—simplicity, fairness, and efficiency. In practice, these goals may conflict with each other and with other policy objectives,” said Bill Gale, co-director of the Urban-Brookings Tax Policy Center and one of the report’s co-authors. “It is crucial that policymakers recognize these tradeoffs when discussing the tax system.”

The report, Tax Administration: Compliance, Complexity, and Capacity, identifies the tax code’s complexity and the Internal Revenue Service’s (IRS) limited capacity as the system’s major shortcomings. The report offers recommendations for lawmakers to ease compliance for taxpayers and bolster the IRS’s ability to successfully implement the ever-evolving tax code.

“Congress has chronically underfunded the IRS, crippling their ability to enforce the tax code and provide support to tax filers,” said Jeff Trinca, vice president at Van Scoyoc Associates and another of the report’s co-authors. “At the same time, policymakers continue to propose new programs for the IRS to administer, forcing them outside of their core competencies with little support.”

“They are often overlooked, but these administrative issues directly determine the success of programs like the Earned Income Tax Credit (EITC), as well as the tax code as a whole,” said Jason Fichtner, a fellow with BPC’s Economic Policy Project and the report’s final co-author.

The EITC, one of the most effective anti-poverty programs in the U.S., has complex eligibility rules requiring 20 separate determinations, including tie-breakers. Difficulty understanding the rules leads many qualifying workers to not claim the benefit or to make improper claims.

The report identifies several near-term opportunities for improving the system:

  • Provide adequate funding for the IRS to properly administer the U.S. tax code and close the tax gap
  • Simplify and consolidate tax credits for low- and moderate-income filers
  • Improve IRS hiring and training processes to improve the agency’s functioning
  • Enhance oversight of tax return preparers
  • Strengthen service programs such as volunteer tax preparation
  • Research and test state-of-the-art techniques used at the state, local, and international levels to improve tax compliance and participation in tax benefit programs

The report is the product of a five-month effort that included roundtable discussions with 25 policy experts, academics, advocates, and stakeholders.

Read the report

Read Jason Fichtner’s op-ed in Roll Call