New Tax Code Has Long Route Ahead Before It Can Be Implemented

Steven Rosenthal of the Urban-Brookings Tax Policy Center speaks with NPR's Lauren Frayer about how the IRS is scrambling to translate the new tax law into rules, regulations, and forms.

LAUREN FRAYER, HOST:

President Trump has signed the GOP tax bill into law, but the new tax code has a long route ahead as the IRS turns it into regulations so that citizens and businesses can actually pay their taxes. Our next guest is very familiar with that process. His name is Steve Rosenthal, and he helped draft tax rules when he worked for the Joint Committee on Taxation of the U.S. Congress. And he joins me now. Thank you for coming in.

STEVE ROSENTHAL: Thank you, Lauren.

FRAYER: When the GOP started talking about a tax overhaul, they touted this as simplifying a very complex tax code. There was even talk of being able to file your taxes on a postcard. Is this tax code any simpler than what we've had all along?

ROSENTHAL: Parts of it are simpler, but parts of it are much, much more complex. On the individual side, there is a larger standard deduction and fewer itemized deductions. So choices for individuals will be somewhat easier. But on the business side, we've recreated the way we tax U.S. businesses both at home and abroad with completely different tax regimes, which will leave a lot of questions to be answered.

FRAYER: So the IRS has tens of thousands of civil servants doing their jobs trying to interpret this law. What are the biggest challenges as they go ahead and do this?

ROSENTHAL: Well, the biggest challenge is for them to figure out what's going on. This law was passed very quickly and largely in closed chambers with very little input from the outside.

FRAYER: So first they have the read 503 pages, right?

ROSENTHAL: Right. And then second, they have to see what questions start popping up. And those questions may take a little while to pop up because everyone is scrambling on the outside. Taxpayers and their advisers are trying to figure out how to interpret and play the rules.

FRAYER: And is that - the IRS actually listening to the public about what issues the public has?

ROSENTHAL: Yes.

FRAYER: Is it a dialogue there?

ROSENTHAL: Yes. There is a dialogue. Anyone can file comments. And by and large, the IRS is open to suggestions. And when they get around to writing rules, they need to follow a notice-and-comment procedure in which they tell the public the kinds of rules they want to write, and they look for input from the public so that they can write their rules.

FRAYER: So this is crunch time for the IRS. This might be a holiday time for everybody else. But they've got a lot of work ahead of them. The IRS has seen its budget cut in recent years. Do you think the staff there is prepared to implement this big new tax code?

ROSENTHAL: Well, you're right, Lauren. This is crunch time. The bill's been signed about a week and a half before it's actually due to take effect - January 1. And as a consequence, there's very little time for the IRS to recover and issue guidance in advance of the effectiveness of the tax bill.

FRAYER: You know the IRS. What's the morale there these days?

ROSENTHAL: Well, the morale is, I think, by and large, pretty bad. The IRS has suffered, since 2010, a 20 percent reduction in budgetary resources. As a consequence, the IRS has been doing each year - as the commissioner says - doing more with less. And that's a real challenge for the IRS.

FRAYER: IRS civil servants have some leeway in interpreting this legislation. How much?

ROSENTHAL: Well, they have a fair amount of leeway. There are two types of interpretations. Some is just trying to figure out what an ambiguous word means. And other forms of interpretive guidance or help is when the Congress delegates to the IRS to fill in gaps in the statute. There's a lot of both forms of guidance that the IRS will need to tackle in the near term. Of course, there's also guidance that will be needed that will be outside of the hands of the IRS, that will require the Congress to revisit through additional legislation to fix the problems that may have arisen as a consequence of this sort of fast-paced and opaque process.

FRAYER: A lot of work ahead then. That's Steve Rosenthal, senior fellow at the Urban-Brookings Tax Policy Center. Thank you so much.

ROSENTHAL: You're welcome.

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