Trump’s Order To Review Treasury Regs No Substitute For Tax Reform

Since my daily drudgery job is directly tied to what the DC Overlords (Washington, not the comic book company) decide sounds best in a 30 second snipped, I try to keep up on the latest thoughts and rumors around tax reform. The latest presidential election was always sure to bring in big changes, no matter who was elected. And now we have our first real movement.

I’m not talking about the just announced wish list for tax reform from the Trump administration, though I’ll touch on that another time. I just want to focus on what has actually passed so far. And that’s Executive Order 13789.

It must have felt pretty good to put ink to that document, which criticized the complexity of our Federal tax system as zealously as a group of sexy nerds on a CW show tear down the 25 year old high school jocks. In terms of real change, however, it’s pretty much a non-issue.

Of course we’re in high school. We just look like college grads because. . .um. . .would you believe a pituitary problem?

Trump’s EO (is that how the cool kids are abbreviating it?) requires that the Secretary of Treasury review tax regulations for any offending regulations that:

  1. impose an undue financial burden on the United States taxpayers;
  2. add undue complexity to the Federal tax laws; or
  3. exceed the statutory authority of the Internal Revenue Service.

Those all sound nice, sure. Now let’s add in the fine print. The Executive Order gives no hint at what would be an “undue burden” or an “undue complexity.” And, more importantly, this is ONLY for regulations that were issued after December 31, 2015. That’s not very long. Treasury Regulations are being spouted out left right and center every day, but I can’t think of any in the past year that slapped me in the face and screamed, “I’m complex! Watch how I make you suffer!”

That’s really not how the Treasury Regulations roll. Regs (as the hip accountants call them) are plugs in the tax code where the Washington Politicians want to push something through to keep their constituents happy but know they can’t consider all the unintended consequences. So they allow the Treasury to fill in the gaps.

Let’s take an example close to home with this Executive Order. Let’s say there was a law that said the Treasury had to review all undue financial burdens, but the the law failed to touch on important points, like what would be considered “undue.” The Treasury would then stick their thumb in the air, sniff around for predators, and create a Reg that says something like, “we’ll consider something undue if it has more than a 1% change in GDP.”

Some would rejoice at the clarification. Others would complain. Whichever side of the fence you’re end up on, you’d have to agree that it is easier to implement that specific goal than some vague verbiage.

The tax code is full of similar issues. The largest Treasury Regulation in my career would be the Repair Regs, which were being considered and tweaked by the Treasury Department for about 20 years before they were issued. It’s big enough that it might meet one of those three qualifications. But they were also issued back around 2011, so they miss requirement #4.

The rest of the Regs are more along the lines of, “oh yeah, the law as written DOESN’T cover oil producers in Southwest Colorado who make between $1 a $5 million a year. I guess we should clarify it so the rubes stop pestering us with questions.”

So whenever the Treasury Secretary gets through Trump’s Executive Order, I would not be surprised if they find nothing. Or maybe they will find one or two, whose removal will be completely unnoticed by anyone.

Either way, this is not the tax reform anyone was looking for. But, like I mentioned before, it probably felt pretty good to sign.