Can You Keep A Secret?

8/12/2013

Benjamin Franklin famously said that "three may keep a secret, if two of them are dead." As numerous scandals involving politicians prove, keeping secrets is especially hard in Congress. Partisan showmanship and bickering colleagues essentially guarantees that the Washington Post be on speed dial. However, two senators believe they have devised a plan that would not only rewrite the 4 million word tax code, but do it secretly, behind closed doors.  

Senate Finance Committee chair Max Baucus (D-MT) wants to pass a tax reform bill before he leaves office at the end of next year. He and ranking minority member Orrin Hatch (R-UT) recognize that with special preferences and loopholes, the tax rates themselves have become nearly obsolete. Their solution is a bold one: start with a blank slate and wipe out a trillion dollars' worth of deductions, credits, loopholes, and strategies. Essentially, they propose a do-over. After the reset button has been pushed, the two senators then would allow their colleagues to begin proposing which deductions and credits should be added back, such as tax-free health benefits, education credits, and tax-deductible charitable contributions. With these proposals, senators would have to justify why they belong in the new Code.  

While it’s romantic to think we could just wave a wand and magically reset the code, in practice the plan faces one very huge problem: how in the world could Congress come to agreement on which deductions and credits to include? Tax reform is an intensely political process, and individual members of Congress have vested interests in particular items of the tax code. For example a senator who proposes dropping the mortgage-interest deduction will face almost certain opposition from groups or organizations that benefit from home ownership (including obvious constituencies like banks, builders, and real estate agents, but also less-obvious folks like Home Depot, Martha Stewart, and Bob Vila).  

Anticipating this hurdle, Baucus and Hatch proposed a plan that would (theoretically) address this concern. The central component is, of course, that the proposals and process for adding to the tax code be done secretly. That way, no senators could be targeted for an unpopular suggestion. Here’s how it would work:  

  • Each Senator's written proposal will be given a unique identifying number, a confidential seal, and a special encryption. The proposal is then archived on a special password-protected server, while paper copies are in locked safes.
  • Only Senators Baucus and Hatch, along with 10 handpicked staffers, can access the proposals.
  • The National Archive will keep the proposals under seal until December 31, 2064.

While their intentions are certainly noble, there is little confidence that this kind of secret approval process could be implemented. Regardless of the type of encryption, the possibility of a security breach would still exist, and having 12 people know about the proposals increases the chances of information leaks. If Ben Franklin was worried about three people, twelve would certainly raise his eyebrows.  

Although Baucus and Hatch’s plan most likely won’t come to fruition, one thing most people in and out of Congress can agree on is that the tax code needs simplification. Here at TaxAudit.com, we see plenty of returns that are filled with great intentions but are not correct due to misinterpretations of our very complicated tax code. Proper planning and documenting are critical to ensure that your return is correct and that you are prepared in case the IRS sends you another thing that can be pretty confusing: an audit notice.