GOP tax plan simpler??? Fuck no...

Simpler taxes under the GOP plan? Don't count on it.

Trump and House Republicans promised that most Americans could file their taxes on a postcard. They won't be able to do it, and neither can the president.

By DANNY VINIK

Last year, when House Republicans unveiled their plan to overhaul the tax system, they made a bold promise: Filing taxes would be so easy, you could do it on a postcard. They even offered a sample postcard to sell the idea. This week President Donald Trump offered a similar pledge: “We'll make the tax cuts simple and fair so that the vast majority of Americans can file their taxes on a single sheet of paper,” he said on Wednesday.

But as House Republicans prepare to release their actual tax plan this week, there’s one near-certainty: American taxes won’t come close to fitting on a postcard.

The Republican tax bill itself is expected to be over 1,000 pages long, and for most Americans, the process for filing taxes will feel similar under the GOP plan as it does today. And in some ways, the House GOP tax plan will likely even make the tax code more complicated.

The complexity of the U.S. tax code is well-known and a constant source of complaint, and itself a big form of waste. Last year alone Americans spent more than eight billion hours, and tens of billions of dollars, filing their taxes—money that a family could have spent at a restaurant, or a small business could have put toward a new technology. The tax code has also spawned a lucrative industry of lawyers helping Americans find ways to cut their taxes.

With all this waste floating around the system, politicians have long promised to simplify the tax code. There are good economic reasons for this—money saved through simplification can be put to better uses, boosting economic growth. There are also political reasons, as the GOP’s release last year suggested; it promised that Americans would no longer have to deal with the complex nuisance of sifting through stacks of forms like the 3903 (for moving expenses) or 8889 (for health savings accounts), to say nothing of all that money they shell out on tax software just to pay Uncle Sam.

In a few ways, the House GOP plan—from what we know about it—may take a couple of steps in that direction. Top Republicans have said the plan will double the standard deduction, leading fewer people to itemize their deductions—the complicated process in which taxpayers dig through the code to see which deductions they are eligible for and how much they can deduct. The plan is also likely to clean out a long list of tax breaks, simplifying the itemization process. (It’s unclear which tax breaks are targeted for removal.) These two reforms would make it easier for many taxpayers to file their taxes—a real improvement over the current system. People who no longer itemize might not have to track down paperwork on their mortgage payments and charitable giving, among the many other deductions—though it's possible they still might.

But the reach of these reforms would also be limited, especially since two-thirds of tax filers currently don't itemize their taxes. And since the plan retains almost all the major tax breaks, the actual itemization process won’t be that much easier.

As much as Americans say they hate doing their taxes, the truth is that simplifying taxes to postcard size has become nearly impossible—thanks to both Republicans and Democrats, and to the voters who put them in office. The confusing American tax code might seem like a labyrinth of taxes, but it's really a labyrinth of tax breaks—more than a trillion dollars in total—and rules designed to prevent tax avoidance, all of which is politically difficult to attack. Each one of those breaks adds to the complication, but each has its own powerful constituency to protect it. Republicans have learned this lesson over the past few weeks as they have fought to repeal the deduction for state and local taxes, only to be rebuffed by New York and New Jersey Republicans whose constituents reap huge benefits from that break. The bill also is likely to retain deductions for mortgage interest and charitable giving, while Republicans have also considered lowering the cap on tax-advantaged 401(k) contributions—a change that could actually make the tax code more complex.

There are a few notable areas where the GOP plan might simplify taxes, including the elimination of the estate tax and the Alternative Minimum Tax, under which certain Americans have to effectively calculate their taxes under two systems. But not that many Americans actually pay the AMT or estate tax. On the business side of the code, the plan would allow businesses to write off the costs of their investments in the first year, replacing the complicated depreciation schedules that companies must currently use. But that change is temporary—it would reportedly expire after five or six years—forcing companies to revert to the previous system.

The most hyped simplification in the tax plan is also the most meaningless: the reduction in the number of tax brackets from seven to four. Republicans often talk about this consolidation as a key way to make filing taxes easier. But the truth is that the brackets are actually one of the easiest pieces of the tax code to navigate; regardless of their bracket, taxpayers can simply look up their taxes in a table. “That does not seem like a measure that’s likely to add considerable simplicity to the tax code,” said Scott Greenberg, a senior analyst with the Tax Foundation.

Then there is the GOP’s big addition to the tax code, which appears likely to add new complexity: a new, 25 percent rate for so-called “pass through” companies, which include everything from small businesses to hedge funds. Republicans argue that the rate will promote investment and increase economic growth, but it will also encourage high-income individuals to reclassify their income so they can take advantage of the 25 percent rate. Republicans are working on rules to block such tax avoidance, an inherently complicated process. “There will be complex rules in the code and then complex regulations and then complex struggles to enforce it,” said David Kamin, a tax expert at New York University who was an economic adviser to Barack Obama.

The same problem exists with the GOP plan to change how businesses’ overseas earnings are taxed. Under the current tax code, those earnings are not taxed until they are brought back into the U.S., leading to trillions of dollars of income kept offshore. Republicans want to move to a system where only domestic earnings are taxed. But this would create a huge incentive for businesses to shift their income so it appears as foreign income, requiring policymakers to create new rules to prevent such tax avoidance. “That will be a full employment act for international tax lawyers in the U.S.," said tax lawyer Libin Zhang.

Perhaps the single biggest simplification for taxpayers has nothing to do with the tax code itself: it has to do with what Americans are expected to do. Many nations simply pre-calculate taxes and send citizens a form to sign, and the IRS could do something similar: It receives earnings records from employers, and has enough information to send Americans a pre-filled tax return each year, which they could review and return. “That would make life easier for a significant segment in the population,” said Kamin. But tax preparers like H&R Block and Intuit, the owner of TurboTax, have lobbied heavily against the change.

A spokeswoman on the House Ways and Means Committee did not respond to questions for this story, including one asking whether the plan would allow the IRS to start offering prefilled tax returns.

The idea of filling out your taxes on a postcard or single piece of paper sounds good in practice, but in reality, the size of the tax form simply doesn’t have much connection to the complexity of the tax code, experts said. Even the "postcard” published by the House GOP last year—a 14-line form published as part of the "Better Way" tax framework—would require the taxpayer to make numerous other calculations to fill those lines out.

The challenge here is not that the tax code has too many tax breaks, exactly, but that taxing income the way America does—rewarding certain behaviors, creating breaks and taxing different types of incomes at different rates—is complicated, especially when it comes to trying to stop taxpayers from avoiding their taxes. A century ago, the tax code was just a few pages long but was riddled with loopholes that undermined the tax base, Zhang said. He added, “All this complexity—a lot of that is to plug the loopholes.”

“There is good and bad complexity. It’s not all one kind. Sometimes, complexity can trade off against other policy goals you are trying to achieve,” said Kamin. “Not surprisingly, complexity is complex.”