The Supreme Court, in its 1926 decision Connally v. General Construction Co., recognized a fundamental right to know what legislation means, especially legislation that creates an affirmative duty to act. The majority wrote, “[A] statute which either forbids or requires the doing of an act in terms so vague that men of common intelligence must necessarily guess at its meaning and differ as to its application, violates the first essential of due process of law” (269 U.S. 385 (1926)).
The current tax code represents precisely the opposite of the constitutional standard for understandable legislation. The federal tax code is so complex that it is challenging just to count the words. The closest we are able to get is an estimate, produced by the National Taxpayer Advocate in her 2008 Annual Report to Congress, of 3.7 million words (NTA 2008, p. 4). The tax code has grown substantially since then.
A law this complicated is difficult to administer and impossible to obey. In every annual report presented to Congress since those reports were first required in 1999, the National Taxpayer Advocate identified “tax law complexity” as the biggest problem taxpayers face in dealing with the IRS. Former IRS Commissioner Shirley Peterson testified to Congress nearly 20 years ago:
A good part of what we call non-compliance with the tax laws is caused by taxpayers’ lack of understanding of what is required in the first place. ... Many taxpayers fail to comply because they are unaware of the requirements of the law or because they cannot easily understand what they are supposed to do (Peterson 1992).
When people do not know how to comply, they cannot be expected to comply. In 2001, the Treasury Inspector General for Tax Administration reported that IRS personnel in its taxpayer assistance centers answered taxpayers’ questions “inaccurately or incompletely” up to 73 percent of the time (Treasury Inspector General 2001). A year earlier, former IRS Commissioner Charles Rossotti remarked, “Fundamentally, we are attempting the-5-impossible. We are expecting employees and our managers to be trained in areas that are far too broad to ever succeed, and our manuals and training courses are, therefore, unmanageable in scope and complexity” (Rossotti 2000).
At the 2010 meeting of the New York State Bar Association’s Taxation Section, IRS Commissioner Doug Shulman summarized just how bad the issue of complexity has gotten. He stated, “we have gone from complexity to perplexity” (Shulman 2010). Very simply, these commissioners are conceding that the job of providing accurate information cannot be done given the scope, breadth, and complexity of the current tax code. This complexity in turn undermines people’s willingness to comply with the law. Taxpayers are less willing to comply with a tax code they know to be rife with loopholes, exceptions, and ambiguities. Such complication breeds the not-unfounded idea that other taxpayers are paying less on the same or greater income. The President’s Advisory Panel on Federal Tax Reform reported in 2005:
[T]axpayers think that with the myriad of targeted exclusions, deductions, and credits, others may not be paying their fair share – so why should they? Some call this “the cheat or chump syndrome.” In addition, clever tax advisors mine the complexity of the tax code to develop and market tax shelters and other schemes clearly designed to manipulate the tax code’s hidden loopholes for their clients’ exclusive benefit. The perception that the tax code is unfair and easily manipulated undermines voluntary compliance – the foundation of our tax system (President’s Advisory Panel 2005, p. 4).
The IRS Oversight Board’s 2004 Taxpayer Attitude Survey showed that about one in five citizens believed that some amount of tax cheating is acceptable (IRS Oversight Board 2004). The board did not delve into why citizens feel this way. Certainly the perception that tax laws are unfair is a key factor driving this belief.
Lawmakers owe citizens and businesses a simple and understandable tax code. More than any other area of law, tax law touches and affects Americans with a growing list of affirmative duties. Given this, the constitutional guarantee of due process mandates a simple tax code that people can understand.
For more information, read The Heartland Institute's Ten Principles of Federal Tax Policy (PDF).