Tax Simplification – A Question

Every so often, the idea of simplifying the tax code comes around. I’m no expert on taxes… I did work for (the most miserable year of my life) for one of the then Big 6 Accounting firms, but nobody will ever confuse me with an accountant or tax attorney, at least not one with anything remotely resembling competence.

The impression I got is that a of the complication that exists is there because someone wants it to exist – one exemption or another for whatever. Presumably, all those exemptions could be eliminated and tax rates lowered a bit. It would be easy to do, at least for individual taxes.

Corporate taxes are a bit tougher. What constitutes a legitimate expense in one industry doesn’t always constitute a legitimate expense in another. The end result are a bunch of “businesspeople” who use their “company car” only for “legitimate business reasons”, namely their daily activities. I really don’t have any solutions at the small business level.

But for large corporations…. well, someone noted on one of the recent threads (sorry – my memory is just not dredging up details) at this blog that profits as declared to investors has been growing much more quickly than profits as declared to the IRS. That makes sense – companies have an incentive to declare low profits to the IRS (to pay lower taxes) and high profits to investors (to attract dollars and boost stock price).

Why not use require both to be the same? It might not solve transfer pricing issue, but perhaps it would go a some way toward reducing tax fraud or abuse. Your thoughts?