June 1999 Issue

President-Elect Testifies on Tax Complexity

By James A. Woehlke, CPA

NYSSCPA President-Elect P. Gerard Sokolski testified on tax complexity before the Subcommittee on Oversight of the U.S. House of Representatives Ways and Means Committee on May 25.

Sokolski testified on various topics, including tax-advantaged savings accounts, phaseouts, retirement plan distribution reform, alternative minimum tax (AMT), and the "kiddie tax." He also touched on the complexity of the capital gains rules and the forms used to compute capital gains.

Sokolski began by pointing out some causes of tax law complexity.

"It is no wonder that Americans are burdened with an overly complex tax law," he said. "There have been significant tax law changes in eight of the last fourteen years."

He noted that the 1997 Taxpayer Relief Act alone contains 36 retroactive changes, 114 changes effective August 5, 1997, 69 changes effective January 1, 1998, and five changes effective thereafter; 285 new Internal Revenue Code sections; and 824 Code amendments. He said that lobbyists for special tax provisions, legislative staffs lacking practical experience, and legislators themselves contribute to the complexity.

Concerning tax-advantaged savings accounts, Sokolski listed the seven types of IRAs and their phaseout ranges. He suggested that uniform phaseouts would greatly simplify the area, and noted that Keogh plans, retirement plans for the self-employed, could be greatly simplified if the Keogh deduction were a straight percentage of self-employment income (Schedule C income) rather than the current approach, which requires an algebraic formula to calculate.

Sokolski criticized the use of phaseouts in general.

"Numerous middle-class taxpayers who thought Congress had done something for them with the Taxpayer Relief Act of 1997 were disappointed," he said. "Some were even angry to find out that the credits or deduction didn't apply to them. Who would have thought that a young married couple just out of school and making thirty-seven thousand five hundred dollars each would not be able to deduct student loan interest because their combined income was too high? Presumably, the intended effect was to show middle-income families that their member in Congress cared about them. The actual effect for many was disillusionment and even anger."

Sokolski called for Congress to avoid the use of phaseouts or at a minimum use uniform ones.

Regarding retirement plan distributions reform, Sokolski said that the tables used for these distributions are very outdated and discriminate against women. He noted that with today's longer life expectancy, the idea of minimum distributions harms the elderly, who may feel the need to leave as much as possible in their retirement plans.

In discussing the AMT, Sokolski said that it is now taxing many people whom it was never intended to tax and noted that it discriminates against people in high-tax states. He offered the following ideas for reform: