Tax Analysts Blog

Proceeding Cautiously With a Taxpayer Bill of Rights

Posted on Apr 2, 2014

Last week Tax Analysts hosted a panel discussion that addressed the idea of a taxpayer bill of rights (TBOR). The panelists, which included National Taxpayer Advocate Nina Olson, Christopher S. Rizek of Caplin & Drysdale, and Alan J. Wilensky, former acting Treasury assistant secretary for tax policy, agreed that a taxpayer bill of rights is generally a good idea in principle. In a 2013 report issued by her office, Olson said the IRS should adopt a TBOR administratively rather than wait for Congress to enact one legislatively, the goal being that IRS employees and taxpayers could have a shared understanding of how tax authorities should treat taxpayers.

On principle, I agree. It is a good idea for taxpayers to know how they will be treated, including the enforcement options available to the tax authorities and the remedies available to taxpayers. Olson said in the discussion, “The theme that we have for the taxpayer bill of rights is [that] it is your foundation for effective tax administration.” This could be very helpful for taxpayers, provided it works in practice.

One issue that was not raised during the discussion was the success (or failure) of taxpayer bills of rights at the state level. Though decidedly different from the type of taxpayer bill of rights being proposed by Olson, state TABORs (as they are known) could provide some useful guidance. In states, the TABOR is a type of tax and expenditure limit. TABORs typically limit the growth of public services through a formula based on population growth plus inflation. A public vote is generally required to override that limit.

Perhaps the most well-known TABOR was enacted in Colorado in 1992 when voters approved Amendment 1 to the state constitution. The amendment limits increases in the state's spending by the rate of inflation plus population growth and caps taxation in a similar manner. Any taxation beyond the caps must be approved by voters and, to prevent the state from skirting the caps, the amendment also limits the kinds of new taxes that can be implemented. TABOR also requires that any revenue that isn’t spent within one year be returned to the taxpayers.

It sounds good. But Colorado’s TABOR has made the administration of the tax system exceedingly difficult. It has even been cited as hindering the state’s education system and other programs. It is questionable whether TABOR has resulted in economic growth or revenue stability. As my colleague Jennifer Carr noted in a recent article on Colorado’s TABOR troubles, “Lawmakers are elected to make difficult choices, and TABOR removes from the table several reasonable approaches and prevents the sort of flexibility that governments need to function.”

The IRS is already struggling with administering our tax system. Perhaps issues of funding and employee training should be addressed before delving into a taxpayer bill of rights. At least in Colorado, what started out as a positive development for taxpayers has turned decidedly negative. If a taxpayer bill of rights, whether at the state or federal level, is made too restrictive, it seems likely that tax authorities and legislators will spend their time figuring out how to work around the restrictions rather than working within them.

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