Legislators from both major parties agree that the Tax Code in America is too complex. Party leaders on both sides of the aisle are calling for simplifying the code and making it more "fair." (Disclaimer: there is no consistent definition of the term fair, especially as it relates to the collection of taxes.)
The average taxpayer does not benefit, in the least, from the complexity of the tax code. Complexity makes complying with the law extremely difficult and/or costly. But the confusion does serve a purpose, it muddies the water allowing legislators to claim victory to their constituents for a job well done, without actually having to accomplish any feat at all.
Consider a media and political favorite tax provision called Bonus Depreciation. In the bail out / stimulus packages of Presidents George W Bush and Barack Obama, both Presidents claimed victory for helping small businesses by passing or extending bonus depreciation rules. These rules provided another vehicle for businesses to speed up tax deductions related to capital assets like equipment, machinery, planes, automobiles, etc.
The passing of this "stimulus" was supposed to incentivize businesses to upgrade their airplane, for example, which would put hundreds of Boeing employees back to work on a full time schedule.
But then, suddenly, the political winds shifted and these accelerated depreciation rules fell out of favor. All of a sudden, the exact law that was supposed to spur on the recovery and lead America out of recession was seen as a grievous tax loophole for corporations. This law provided a "tax break" to wealthy companies that could afford to do without a corporate jet subsidy.
This piece of the tax code went from hero to zero in a very short amount of time, with the same President both applauding it and subsequently condemning it at his convenience.
The truth is that accelerated depreciation neither helps nor harms as much as the pundits and legislators think. At the end of the useful life of the airplane, the company would be allowed to take the same dollar amount of deduction. Bonus depreciation simply alters when to take the expense, it did not affect the total dollars of depreciation. A provision in the depreciation laws called recapture prevents companies from abusing depreciation rules to shift income into lower tax rates.
Sure, time value of money theory tells you that you'd rather pay tax in a later year instead of this year. But at a time when operating incomes were compressed due to the recession and interest rates low due to easing from the Fed, the value created through the income deferral is minimal.
This doesn't even begin to cover the other problems that the bonus depreciation rules created. Many states did not go along with the Federal bonus depreciation laws, so tax preparers had to create and track separate schedules for each jurisdiction. Many, many hours were spent trying to understand the new rules and forms in each state.
Therefore, the added complexity allowed the law to serve as both an economic rescue plan and also a picture of corporate excess, all while providing minimal taxpayer benefit and increasing the difficulty to comply with the law. And it's not just depreciation, several areas of the tax code could be totally eliminated (not reformed) and the result would be a simpler, more straightforward tax code.
Each political party is hoping for a grand reform plan where a handful of legislators from each side lock themselves in a committee room and bicker and barter until they emerge with an even longer, dumber tax code. Each side will claim victory for some little worthless pet bargaining chip and seek praise from their respective voting bases. Meanwhile, the only thing that will grow faster than the IRS Tax Code is the National Debt.
Gag us all with a wooden spoon; the last thing this country (and its sorry balance sheet) needs is each political party bragging about how great it is and how terrible the other party is, while failing to accomplish a single thing that is materially beneficial to the economy of the United States of America.
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