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The Spokesman-Review Newspaper
Spokane, Washington  Est. May 19, 1883

Tax code not likely to get any simpler

Katherine Reynolds Lewis Newhouse News Service

Soon the mail will start trickling in – from employers, mortgage companies, retirement plans. “Important tax information,” the envelopes proclaim.

Some toss them unopened into a shoebox for an accountant to decipher. Some carefully file the documents, then panic come April 15. Some enter the information immediately into a computer program.

Add up all the time and money Americans spend preparing their income tax returns, and the total is staggering: 6 billion hours and more than $100 billion a year, according to the Bush administration.

“The tax code is a complete maze of loopholes and special interest provisions,” said Taylor Griffin, a U.S. Treasury Department spokesman. “Comprehensive tax reform is a priority of President Bush’s second term.”

The president believes a simpler, fairer tax code would save people resources that would then be pumped back into the economy, Griffin said. The administration’s first step toward reform will be naming a bipartisan panel to recommend changes.

So what does that mean to the roughly half-million accountants and tax preparers trained to help people pay their income taxes? Currently, half of all tax returns are completed with professional assistance.

“If the tax code were really made very simple, there could be a whole industry that would no longer be needed,” said Drew Lyon, principal at PricewaterhouseCoopers and a former Bush administration tax official.

A spokesperson for H&R Block, the nation’s No. 1 tax-preparation firm, declined to comment.

But experts agree that the effect would depend on the type of reform. One proposal would scrap the income tax in favor of a national sales tax or value added tax on goods. Another would institute a flat tax, such as 17 percent, on all income.

Hardest hit would be preparers who do little more than fill in the forms, said Leon Taylor, a certified public accountant in Beaverton, Ore. There will always be work for CPAs and tax lawyers, he added, given that wealthy individuals and businesses need advice no matter what the tax system.

Many tax experts are skeptical that Bush will succeed in reducing the need for professional tax preparers.

“Any time they attempt to simplify, it usually ends with more complexity than they started with,” said Donna LeValley, contributing editor to the J.K. Lasser tax guide, with John Wiley & Sons in Hoboken, N.J.

She offered this example: In trying to streamline the definition of a child for tax purposes, the IRS replaced five existing tests with a single new one. But the rules also say that if any previous definition applies, the child counts – so tax preparers must also review the old terms.

Uppermost on Bush’s agenda is making permanent both his recent tax cuts and the estate tax repeal. And Bush has said fundamental tax reform will continue to encourage homeownership and charitable contributions. Observers take this to mean that deductions for mortgage interest and charitable contributions will continue.

“That has eliminated the possibility of a national sales tax or value added tax unless you do it in combination with an income tax, and that sure as heck wouldn’t be simpler,” said Tom Ochsenschlager, vice president of taxation for the American Institute of Certified Public Accountants.