Last month, Americans finished filing their taxes for the year. Once again, it was a massive, time-consuming headache. All told, taxpayers spent an estimated 7.1 billion hours dealing with the tax code this year.
Fortunately, the Trump administration is renewing its push to clean up the clutter. A new effort to eliminate outdated IRS rules builds on reforms from the president’s first term and offers a step toward a simpler, more transparent system. But much more work remains to truly reduce the burden that tax complexity imposes on American families and businesses.
During President Trump’s first term, the Treasury identified 300 regulations for elimination following an executive order targeting rules that were outdated, duplicative or overly burdensome. Many of these regulations interpreted repealed provisions — some dating to the 1940s — or were tied to expired or revised statutes. Although those changes didn’t overhaul the code, they reduced clutter, improved clarity and modestly lightened compliance burdens.
Trump’s second term is following a similar path. In February, the president issued an executive order that included directions to eliminate “overbearing and burdensome” regulations and other guidance documents. The IRS has started cleaning out the low-hanging fruit of guidance that has outlived its usefulness due to legal changes or updated regulations.
This is the first step of a broader regulatory review underway as a result of the executive order. The Office of Management and Budget and Department of Government Efficiency are also examining rules ripe for repeal, and have invited public comment.
Among the items they should consider: “midnight regulations” issued in the final weeks of former President Biden’s term, including a controversial rule that could expose more taxpayers to penalties.
This rule change stripped away procedural protections ensuring that rogue IRS agents weren’t handing out huge and unfair penalties to taxpayers without some oversight. Reinstating them is a commonsense way to protect taxpayers from harassment.
Congress has a role to play as well. One area in urgent need of attention is the 1099-K threshold for reporting payments received in bank accounts and payment apps. Under the American Rescue Plan Act, the threshold was lowered to $600, but the IRS has twice delayed enforcement.
Recognizing that this way-too-low threshold was unworkable, the IRS simply ignored the law last year and set a $5,000 threshold for this year’s tax filing season. Though perhaps well-intentioned, this sort of unilateral action sets a troubling precedent for tax administration, where the IRS effectively rewrites statutory requirements on its own. Fixing this provision by raising the threshold and clarifying the rules would be a straightforward way for Congress to reduce unnecessary paperwork and avoid confusion for taxpayers and small businesses alike.
Other reforms should target regulatory areas with poor cost transparency. Although the IRS is required to estimate time and out-of-pocket expenses for all of its forms, its work is incomplete. Many complex forms still list “$0” in estimated expenses, even as the IRS concedes in supporting statements that it hasn’t finished calculating the burden. That’s not transparency — it is misleading by omission. Lawmakers need better data to determine whether compliance costs are excessive relative to revenue raised.
Another way to promote simplification is by reviving a requirement that the IRS submit annual reports to Congress identifying sources of tax complexity. Although the IRS only ever issued two such reports, both resulted in legislative or administrative fixes. Congress should push the IRS to reinstate these required reports that would result in tax simplification.
We have recommended creating a strategic review commission for tax administration modeled on the Department of Defense’s regular reviews every four years. This public-private partnership would bring together IRS staff, outside experts and taxpayer advocates to examine the tax code line by line and recommend simplification and cost-saving measures. The commission could provide Congress with its proposals ensuring timely consideration and preventing reforms from gathering dust.
Tax code simplification won’t happen overnight, but it can start with the elimination of obsolete rules, restoration of transparency and adoption of a regular review process. Before the Tax Cuts and Jobs Act reduced taxes while streamlining filing, Americans spent over 8 billion hours on compliance. Letting that law expire will send burdens soaring. Simplification isn’t just good policy, it’s a way to give people back some of the 7.1 billion hours they currently spend helping Uncle Sam rifle through their pockets.
Demian Brady is vice president of research at National Taxpayers Union Foundation.