The U.S. government is making efforts to limit tax evasion from which the Treasury loses billions in tax revenue each year. Even multi-national companies, such as Apple, are now under investigation for tax evasion, which many believe is the result of the complexity of the U.S. tax code that encourages tax evasion.
There are very few who dispute that the U.S. tax code is complex. With 74,000 pages of tax rules and regulations, it becomes difficult to enforce tax laws. Those who want to evade taxes find loopholes they can exploit due to the complexity.
Today, the tax code stands at 4 million words, which is much larger than the tax code of France, Germany and many other countries. The need for such a vast tax code is a question that has no answer because the tax code keeps getting longer and longer with time. The need for simplification of the tax code is agreed upon by all, but little effort has been made to make the change till now. There have also been accusations that the tax code is vast because many corporations and industries receive special favors in exchange for campaign contributions.
A large amount of money is spent each year to enforce compliance with the tax code. In 2010, $168 billion was spent to ensure compliance. In 2012, more than 90 million taxpayers called the IRS’ toll-free number for inquiries. Many taxpayers find themselves in tax debt because they were not able to correctly file their tax returns because they simply do not understand how.
There is more than one reason to simplify the tax code. If the present efforts to curb tax evasion are successful, maybe simplifying the tax code will be the next step towards revenue building and reducing waste.