Tax Analysts Blog

Reagan Was Wrong About Tax Complexity

Posted on Jun 16, 2011

The tax code is complicated enough -- did President Ronald Reagan really have to make it worse by misquoting it?

In 1986, Reagan began a famous speech with a selection, of sorts, from the Internal Revenue Code.

    For purposes of Paragraph (3), an organization described in Paragraph (2) shall be deemed to include an organization described in Section 501(c) (4), (5), or (6) which would be described in Paragraph (2) if it were an organization described in Section 509(a)(3).

Reagan intended this sentence to exemplify everything that was wrong with the code, bolstering his case for tax reform. And who can argue? Pretty bad, huh?

Worse yet, the Tax Reform Act of 1986 didn't even fix it. As Florida law professor Stephen J. Willis noted in 1997:
    President Reagan included this sentence in his speeches as example of the Code being undecipherable. During his and subsequent administrations, we've seen 121 tax bills pass Congress. At least a dozen involved "simplification." However, the above sentence remains.

On its language blog, Johnson, "The Economist" provided an excuse for Reagan's failure to excise the offending passage. Apparently, it's necessary:
    The sentence is so infamous Ronald Reagan cited it in his drive to pass the simplifying tax reform of 1986. Unfortunately, he didn't manage to remove the sentence itself from the code. That may be because it would be difficult or impossible to do ... statutes and rules have to make many cross-references by their nature. Some of these will be multiple, nested or in some other way complex. And the only thing worse than this blizzard of references to other parts of the law-book would be repeating all of the provisions of paragraph (2), and section 501(c)(4), (5), or (6) and section 501(c)(3) again in section 509(a), making this one sentence absurdly long, instead of absurdly confusing.

So we're supposed to accept this particular instance of inscrutability. Which I would be prepared to do if it actually existed. Which it does not.

Essentially, Reagan misspoke. And I, like almost everyone else, never noticed. But my friend Mitchell Kane at New York University Law School did notice. After a reference to the Reagan quote appeared in the New York Times, Mitchell wrote me to say:
    The last phrase in the Code section proper is "if it were described in section 501(c)(3)."  The Reagan text has "if it were described in section 509(a)(3)."  In the Reagan version it truly is IMPOSSIBLE to understand because the very provision quoted is 509(a)(3), so it would be literally an infinite loop, or jest.
Take a look for yourself. Mitchell, by the way, found the accurate rendering of this sentence to be wholly clear and understandable. Which is why he's a lawyer and I'm an historian.

(Two minor notes: First, I hope everyone appreciates Mitchell's literate but subtle reference to novelist David Foster Wallace and his most famous work, Infinite Jest. The original New York Times article referencing the Reagan quote began as a discussion of DFW's last and posthumously published novel, The Pale King. See my review if you really need to know more about the literary and artistic value of tax tedium. Second, Stephen Willis, in referencing the Reagan quote, actually renders the Code -- but not Reagan's speech -- accurately. So does the Economist. Like me and apparently everyone else, they never noticed the discrepancy.)

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