Taxes are a common theme on news shows in the U.S.; you may have even seen the Tax Foundation’s very own Kyle Pomerleau speaking about the presidential candidates’ tax plans. However, Americans rarely see a sitcom or drama where actors discuss taxes, and why would someone want to infuse their fiction with the realities of “death and taxes” anyway. Although American might scoff at a show about taxes, Nigerians have created a 13 episode drama about the benefits of taxes and the pitfalls of not paying them. The drama is called Binding Duty and it is a project of the Federal Inland Revenue Service, the IRS of Nigeria. Although this project was funded by the FIRS, Binding Duty was written and directed by well-known individuals in the Nigerian media community . The drama features veteran actors and actresses of Nigeria’s “Nollywood” and is directed by an established director. The episodes cover a wide range of tax policies and situation in which a Nigerian might find themselves. The episode Burrowed Time focuses on unremitted VAT funds, To Have and to Hold focuses on withholding tax proceeds, Ostrich Syndrome focuses on tax arrears, and Double Jeopardy focuses on personal income taxes. Throughout all the episodes, Doorshima Jang, the Director of FIRS in Binding Duty, outwits the would-be tax evaders and brings them to justice. Before dismissing Binding Duty as another after-school special, the FIRS has argued that tax compliance in Nigeria is as much a cultural problem as an administrative problem. Nigeria has a high rate of tax avoidance and few would say that filing their taxes is part of the culture. However, the World Bank has ranked Nigeria as the 3rd worst place to file taxes in their Ease of Paying Taxes global rankings for 2015 . The onerous 908 hours required to fulfill tax obligations in Nigeria does not help engender a culture of tax compliance. Binding Duty may help Nigerian understand and navigate some of the tax system, but it does not reduce the burden on tax payers. The IRS is unlikely to spring for a Law and Order style show on taxes with Alan Arkin as IRS Director John Koskinen, but the IRS could consider making their website at little more user friendly. Although some American feel that searching through pages of tax documents is entertaining, most of them would rather be watching Law and Order.
Some of the features of Bobby Jindal’s recently released tax plan – fewer tax brackets, ending the estate tax, and eliminating itemized deductions – should be familiar from other Republican candidates’ tax plans . But a few elements of Jindal’s plan stand out from the rest of the field. Specifically, Jindal would significantly change the tax treatment of employer-sponsored health insurance plans. Since the 1940s , health insurance benefits provided by employers have not been subject to federal taxation. Businesses are able to deduct the cost of health insurance provided to employees, while employees are not required to report health insurance benefits as taxable income. Essentially, this amounts to a tax subsidy of employer-sponsored health insurance, which many have blamed for fueling high healthcare costs. In addition, the exclusion leads to over $200 billion in lost tax revenue every year, one of the most expensive provisions in the tax code. During the 2008 campaign, candidate John McCain called for replacing the health insurance exclusion with a health insurance credit – thereby requiring Americans to report the value of health insurance benefits as income. He was attacked for this proposal by the Obama campaign, who accused him of taxing healthcare benefits “for the first time in history.” Two years later, President Obama would sign into law a tax on healthcare benefits over a certain threshold – the Cadillac tax – as part of the Affordable Care Act. While Bobby Jindal has called for repealing the Cadillac tax, his tax plan would include a provision similar in concept. According to Jindal’s website, his plan would “replace the exclusion for employer-based health insurance with a standard deduction for health insurance costs whether they are provided by the employer or purchased by an individual.” This means that Americans would be required to report health benefits as income, but would be able to deduct a set amount of healthcare benefits every year. Essentially, employer-provided health insurance would still be tax-free under a given threshold, and would be taxed over the threshold – just like the Cadillac tax. However, this provision of Jindal’s plan differs from the Cadillac tax in several important respects. While the Cadillac tax imposes a flat rate of 40 percent on the value of employer healthcare plans above a threshold, Jindal’s proposal would impose the rate of whatever tax bracket a household falls into. In the case of Jindal’s plan, insurance plans would likely be subject to a rate of 25 percent, the top tax bracket that Jindal proposes. Additionally, Jindal would index the standard deduction for health insurance to inflation. In contrast, the Cadillac tax’s thresholds are not indexed for inflation, meaning that more and more healthcare plans will be subject to the tax with each passing year. It is unclear whether Jindal would index this deduction to overall inflation or healthcare inflation (which grows much faster). If the deduction were indexed to overall inflation, Jindal’s proposal would also likely apply to an increasing number of plans every year. Perhaps most importantly, while the Cadillac tax is imposed on businesses, Jindal would tax individuals on their healthcare benefits. This would be an important structural shift in the tax treatment of healthcare: for the first time, individuals would be required to report the value of their employer-provided healthcare plans, even if they do not pay taxes on the majority of it. This would be an important administrative step towards understanding who receives tax-preferred employer-sponsored health insurance, and would make it easier to roll back the tax preference later on. At least one other presidential candidate has called for changing the tax treatment of employer-sponsored health insurance: Marco Rubio’s healthcare plan calls for setting the tax preference for health insurance “on a glide path” and replacing it with a tax credit for healthcare. Under sound tax policy , the tax code would treat all forms of labor compensation equally, including health insurance benefits. Thus, candidates’ proposals to replace the tax exclusion of employer-sponsored health insurance with a deduction or credit are a step in the right direction.
In a recent Pew poll , 72 percent of Americans said that they were bothered by how complex the federal tax system is. These taxpayers are justified in their complaints: as of 2015, federal tax laws and regulations have grown to over 10 million words in length. This figure includes the federal internal revenue code (2,412,000 words long) and federal tax regulations (7,655,000 words long). It does not include the substantial body of tax-related case law that is often vital to understanding the tax code. The length of the federal tax code and regulations has grown steadily over the past sixty years. In 1955, the two documents were 1.4 million words in length. Since then, they have grown at a pace of about 144,500 words a year. Today, the federal tax code is roughly six times as long as it was in 1955, while federal tax regulations are about 2.5 times as long. The length of the federal tax code is a good stand-in for the overall complexity of the federal tax system. After all, the more there is to know about federal tax law, the harder it is for Americans to file their taxes quickly or correctly. Tax complexity creates real costs for American taxpayers and the U.S. economy. Americans spend 6.1 billion hours and $233.8 billon complying with the tax code. Due to increasing tax complexity, over 90 percent of taxpayers now hire professional tax preparers or use tax preparation software. Why is the federal tax code so complex? In part, it’s because politicians have used the tax code to administer dozens of areas of federal policy – from healthcare to energy to education . In part, it’s because defining income and determining tax liability are inherently difficult tasks. And, in part, it’s because politicians have not made any serious effort to simplify the federal tax code for at least thirty years, instead adding on new provisions on top of one another. To get a sense of exactly how complex the federal tax code is, I’ve selected 100 words at random from the middle of the code: (A) In general The net surrender value of any contract shall be determined— (i) with regard to any penalty or charge which would be imposed on surrender, but (ii) without regard to any market value adjustment on surrender. (B) Special rule for pension plan contracts In the case of a pension plan contract, the balance in the policyholder’s fund shall be treated as the net surrender value of such contract. For purposes of the preceding sentence, such balance shall be determined with regard to any penalty or forfeiture which would be imposed on surrender but without regard to any market value adjustment. Now, multiply that selection by 100,000 – and you have the federal tax code. Tax complexity creates an unnecessary burden on taxpayers, and simplifying the tax code should be a major priority of any tax reform. Note on methodology: For years between 1955 and 2005, we used figures from the West Publishing Company provided to us in this report . To arrive at 2015 figures, we first took a simple word count of the text of Title 26 of the U.S. Code (about 3.8 million words) and Title 26 of the Code of Federal Regulations (about 14.7 million words). However, these figures overstate the length of the tax code, as they include tables of contents, appendices, references, amendments, and effective dates. To capture the number of words in the main body text of each of these documents, we also took a simple word count of the 2005 code, and deflated the 2015 figures by the proportion by which our 2005 count exceeded the 2005 West Publishing Company figures. Regarding the number of pages in the tax code, see this post .