Add yet another thing to President-elect Barack Obama's to-do list: Tax reform.
If Timothy Geithner -- the guy Obama wants to run the Treasury Department -- could make $34,000 worth of mistakes on recent federal tax returns, then clearly this is a system so bloated and complex as to be incomprehensible to all but the most pointy-headed accountants.
"The system has gotten out of hand," said Bob Carroll, vice president for economic policy at the Tax Foundation, a nonpartisan Washington think tank, and former deputy assistant Treasury secretary for tax analysis in the Bush administration.
"Year in and year out, Congress and whichever administration is in power adds more layers to the tax code. And it will keep getting worse."
The labyrinthine nature of the tax code was Geithner's excuse for depriving Uncle Sam of much-needed revenue. It was reported last week that Geithner failed to pay Social Security and Medicare taxes while working for the International Monetary Fund between 2001 and 2004.
He was technically considered self-employed while at the IMF and was required to pay the taxes himself, rather than have the funds withheld by his employer. Obama called the unpaid taxes "an innocent mistake."
Aside from the entertainment value of our likely next Treasury secretary either being ignorant of tax rules or being a tax cheat, the episode highlights the lunacy of a tax code that now runs more than 60,000 pages. More than 500 changes were made last year alone.
The Internal Revenue Service's national taxpayer advocate estimates that the complexity of the tax code results in taxpayers spending about $193 billion a year complying with filing requirements -- the equivalent of 14% of all income taxes collected.
About 60% of taxpayers feel it necessary to pay a professional to handle their taxes, and another 22% purchase tax-preparation software like TurboTax. In other words, more than 80% of Americans pay each year for help with their taxes.
"The system is broken," said Gina DeRosa, a certified public accountant in Torrance. "Eighty percent of the country should not need help filing taxes."
Most tax-reform mavens will say any remedy should include at least three key components: fairness, sustainability and simplicity.
Fairness means we want people with more money to pay more in taxes -- a progressive system like we have now.
Sustainability means that any changes will either maintain existing revenue levels or increase revenue.
