The department's role has been one similar to that of the little Dutch boy who used his finger to plug a leak in the dike, except instead of water, the department has been holding back a flood of tax cuts. Beyond a response to members of Congress and the public, Treasury's simplification package is the outcome of a series of political decisions. For example, providing small businesses with alternative minimum tax relief was a political decision to cut taxes for those businesses. This is counter to Treasury's traditional view that presumes tax abuses potentially could be worse in the small business community given the huge number of such enterprises. Many of the simplification proposals in the President's plan, such as increasing the standard deduction for dependents, are political winners and Congress probably will move at the appropriate time to pass them.
Difficulties lie ahead for several of the other proposals.
As Archer made clear, some proposals will not be enough for those members of Congress who want a complete overhaul of the current tax system, rather than just tinkering around the edges. Perhaps more problematic for the administration, the simplification package may have created an opening for critics of certain current tax laws to weigh in on their validity, thereby slowing down momentum for passage of many of Treasury's relatively non-controversial proposals. For example, by proposing a de minimis exception from the passive activity rules, Treasury has now given critics a forum for discussing the underlying rationale for having passive loss rules at all. Establishing a uniform reasonable cause exception for penalties will no doubt give some members of Congress a forum for blasting the IRS for what some of their constituents perceive as an abusive use of penalties. Whether the Treasury proposals are simplifications depends on who you are.