The analysis noted that Congress has made an average of more than one change to the code each day since 2001 and that taxpayers, 90 percent of whom pay experts to determine what they owe, spend a combined six billion hours a year trying to conform to the rules.
Olson also identified lack of funding for the agency and identity theft as other serious issues facing the IRS, but she described the need for tax reform as an “overriding priority.”
The report urged Congress to approach tax reform in a manner similar to zero-based budgeting, reassessing each tax break with the starting assumption that all would be eliminated. Only those codes with great public benefit would be kept on the books.
Congress’s nonpartisan Joint Committee on Taxation, which assists both political parties with legislation, has estimated that tax subsidies will total about $1.1 trillion for fiscal year 2013, compared with about $1.4 trillion in revenue from individual income taxes during the same period.
Congress could lower individual rates across the board by 44 percent and come up with the same amount of revenue if it eliminated all tax breaks, the report said.
William G. Gale, a tax-policy expert with the Brookings Institution, agreed with that assessment but questioned whether Congress could withstand the pressure interest groups would apply to protect their subsidies.
“It would be better policy to move in that direction, but everyone thinks their tax break should be sacrosanct,” he said. “Everyone who is losing a tax break would want to make sure that they ended up getting a better deal and not a worse deal.”
Gale said Congress is unlikely to overhaul the tax code in the manner Olson recommended.
“I don’t see how we get from here to there in the current situation,” he said. “They just raised rates, so I have a hard time seeing Congress and the administration saying, ‘Let’s lower them again.’ ”
Recent history shows that Republicans are likely to oppose any plan to generate new revenue and that Democrats would probably contest the lower rates, Gale added.
Olson heads the Taxpayer Advocate Service, working within the IRS as an ombudsman for the nation’s 140 million taxpayers.
Olson’s report warned against underfunding the IRS, noting that lawmakers froze the agency’s budget at $12.1 billion for 2011 and reduced it to $11.8 billion for 2012.
“The plain truth is that the IRS’s mission trumps all other agencies’ missions, because without an effective revenue collector, you can’t fund those agencies,” Olson said.
The report concludes that each dollar Congress appropriates for the IRS generates substantially more than one dollar in additional revenue.