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1 Arhur P. Hall, The Compliance Costs and Regulatory Burden Imposed by the Federal Tax Laws 1 (1995)

handle is hein.taxfoundation/taxfaayc0001 and id is 1 raw text is: TAX ION FOUNDATION January 1995 The Compliance Costs and Regulatory Burden Imposed by the Federal Tax Laws House Ways & Means Committee Testimony The following testimony was presented by Dr. Hall to the Subcommittee on Oversight of the House Ways & Means Committee on December 9, 1994. The cost of complying with a tax system is directly related to the complexity of the system. In terms of complexity, it is fair to say that an income tax - the core of the U.S. government's tax system - ranks among the top of the tax systems currently in operation around the world. Ironically, the term income itself accounts for the inherent Since then, the income tax has grown from representing about 41 percent of the entire tax code (in terms of the estimated number of words) to representing about 60 percent of the entire tax code in 1994, a 19 percentage point increase. complexity. Income, particularly business and investment income, is tricky to define, and has, therefore, always added excess complexity to our tax system. I have discovered complaints about the complexity of the federal income tax system that date back to 1914, the year immediately following the adoption the 16th Amendment to the Constitution which authorized the income tax. Indeed, the 1927 Report of the joint Committee on Internal Revenue Taxation (Vol. 1, p. 5) states that: It must be recognized that while a degree of simplification is possible, a simple income tax for complex business is not. Growth and Instability of the Income Tax Code Despite decades of concern over its undue complexity, the income tax was formally placed at the core of the federal tax system by the Internal Revenue Act of 1954. Since then, the income tax has grown from representing about 41 percent of the entire tax code (in terms of the estimated number of words) to representing about 60 percent of the entire tax code in 1994, a 19 percentage point increase. The volume of income tax regulations has grown even more. In 1954, income tax regulations represented 55 percent of the body of tax code regulations. In 1994, that figure has grown to 83 percent, a 28 percentage point increase. Tax law complexity is almost wholly related to tax base questions - that is, questions or uncertainty about the timing or definition of taxable transactions. The inherent complexity of an income tax results from the difficulty of defining income and determining when to recognize income and expense for tax purposes. Over time, the political process of give and take has made these difficult tax base questions inordinately By Arthur P. Hall Senior Economist Tax Foundation 361 1

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