There is an idiom often used years ago that has since fallen into disuse. That expression was “the real McCoy.” Its exact origin has been disputed but its meaning was well and commonly understood. The term meant ‘the real deal’, ‘the genuine article’.
The phrase was typically asserted in the singular. (ex. he’s the real McCoy or that _________ (fill in the blank) is the real McCoy.) From 1957 until 1963 a popular TV series aired that was titled The Real McCoy’s, plural. The show depicted a farming family named McCoy. Like most families, the McCoy clan included multi-generational members, siblings and spouses. As a metaphor, the show’s name was slightly different than the more general usage of “the real McCoy.” It suggested what you saw was what you got. The McCoy’s were genuine, down to earth people.
You are now probably asking just what the hell all of this has to do with the Internal Revenue Code.
In my last post, I emphasized that the barrier to meaningful, lasting tax reform is us, the American taxpayers. But that may not be the real McCoy. The truth is that, collectively, we are only one member of The Real McCoys. We do have some siblings.
Have you ever stopped to think about the unending plethora of commercials that you see and hear on radio and television? How many advertisements can you call to mind right now, this instant, promoting this or that tax service? Tax preparation companies, tax preparation software, tax attorneys, tax accountants, and those who will “fight” the IRS for you are everywhere. Tax relief professionals have been fruitful and have multiplied past all understanding.
What began as a cottage industry has now grown to become a financial service’s McMansion. Today, taxes are the bull of the woods, the big kahuna and American taxpayers need the help of a big gun, a top dog, the head honcho to make sense of their taxes.
The primary cause of this large and growing mix of needed service providers and societal parasites is the unyielding, burgeoning complexity of the IRC. For every year since its creation in 1996 under the Taxpayer Bill of Rights 2, The Taxpayer Advocate has cited tax code complexity as one of the most serious, if not THE most serious problem we face with our current tax system.
Perhaps the most telling of these is the comment she made in the FY2009 report.
“In several prior reports, I have designated the complexity of the tax code as the most serious problem facing taxpayers and the IRS alike. The need for tax simplification is not highlighted as a separate discussion in this year’s report to avoid repetition, but the omission of a detailed discussion in no way suggests the lessening of its importance.”
It is pretty serious when the Taxpayer Advocate throws up her hands and throws in the towel. But that is what her comment suggests she has done.
I will discuss the problem of complexity in future posts. Suffice it for now to suggest that this complexity has given birth to a monster. The complicated, convoluted, inconsistent tax code Congress has created has also shaped an army of advocates for the status quo, whether such support is grudgingly offered, reluctantly provided or wholeheartedly extended.
That army is manned by none other than those who make their living as a result of the truism that most Americans do not have a clue when it comes to preparing their own taxes.
However, the obstacle to tax reform that those within the tax profession create is difficult to discern. Very few, if any, of these individuals or companies openly support a complex, irrational or inequitable tax code. However, should the tax code be truly simplified, the need for much of these services would be tossed on the scrap heap along with rotary dial telephones and cellulose film. And something else would also get thrown on top of this slag pile.
That something else is the Internal Revenue Service. With almost 80,000 employees and an annual budget approaching $12 billion dollars, the IRS has become the world’s largest financial service entity. Much of that bureaucratic excess would also become unnecessary should meaningful reform be enacted.
There are well over one million attorneys practicing law in the United States. Add to that number almost 700,000 CPA’s and another million or so bookkeepers, financial advisers and accountants. While many included in that total are likely among the more than 1,000,000 that American taxpayers hire every year to help make sense of their individual tax situations, the ranks of tax professionals swell even further when you add Registered Tax Preparers and Enrolled Agents.
Bottom line, the complexity of our tax code has spawned a Medusa, a multi-headed monster of lawyers, accountants and others retained each year to help get American taxpayers past April 15. I am reminded of a line from an old bawdy song, “All the Counts, Vicounts (sic), sub-counts, no-accounts and even those sons-of-bitches who can’t count were there…”
Do you now recognize the enormity of the vested interest in maintaining the status quo? Although it is true that our complacency and our desire to desperately hold onto our pet tax benefit together serve as a barrier to tax reform, the tax industry phenomenon is also on of the real McCoys.
But it seems I have put forward a conundrum. I also stated that this population, this group of entities with a personal stake in protecting and preserving a nonsensical tax code, does not publicly support our tax code. In fact, many are openly disapproving of it. Subtle. Although they are overtly critical, they pick and choose their criticisms and their battles, all the while essentially retaining the complexity. Very subtle.
But examine this problem from another perspective, one that demonstrates the even more shrewd but obscure approach taken by those who secretly wish for more of the same. Who writes the tax code? Who are called to testify in front of this or that congressional committee? To borrow from the vernacular used by the McCoy’s, ‘It ain't you n’ me.’
Congress calls in lawyers, accountants, tax professionals, current and former Internal Revenue agents, economists and academics to testify on tax reform. Anyone see a potential conflict there? I know I do. What about the makeup of Congress itself? More than one in three claim law as their profession. Lawyers are writing the law that they then retire to private practice to interpret for all of us.
It seems that we have the residents running the zoo.
This failure to pass meaningful reform carries two significant complications. The first is that we must continue with a tax code that is simply inefficient and inequitable. The second is that we add an additional burden onto our economy. Every American is saddled with a sack of bricks filled with the costs of compliance.
The number of data sources and studies that point to this cost abound. One analysis after another asserts that the majority of Americans now hire a tax professional to prepare their taxes. And tax professionals argue among themselves about the merits of their service over all others. Most offer to review any returns filed previously that were prepared by another tax preparer for free.
During this past tax season, H&R Block, perhaps the nation’s leading tax preparation firm, ran a powerful television advertising campaign suggesting that American taxpayers are leaving a lot of money on the table. They said that their evidence indicated that one in five taxpayers who prepared and filed their own returns either owed less tax than originally calculated or was due a larger refund. They implied that the amount that was overpaid to the Internal Revenue Service approximated one billion dollars. A billion dollars! If that is true, then the obvious alternative is to hire a professional, whether H&R Block or someone else. That is a clear cost. And it should not be a necessary requirement.
How about the cost to small businesses? The cost for accountants and bookkeepers to prepare and keep all necessary documentation to substantiate any returns filed. The cost for accountants or tax professionals to prepare and file required returns.
The Tax Foundation, an often used and frequently criticized resource for any American wishing to know more about our tax system, has stated that Americans spend almost six billion man-hours complying with the tax code. It further asserts that almost six in ten require professional assistance to prepare an accurate return. Can we say billions of dollars wasted?
Does it make sense to continue to levy a tax that almost no one supports as being fair and efficient, and that adds these additional costs to our economy? It doesn't make much sense to me.
We have to get out of our own way and we have to make the tax preparation industry become overt advocates for meaningful and lasting reform. It is time the McCoys joined forces with the Hatfields. Together, they should stand off the ‘revenuers’ as federal agents were often referred to by those on Thunder Road.
And it is time for me to retire for an adult beverage. To quote the Terminator, “I’ll be back.”