"Can Washington Break Its Tax-Break Habit?"

ROBERT SIEGEL, host:

From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel.

MICHELE NORRIS, host:

And I'm Michele Norris.

For the next few minutes, we're going to talk taxes and we're going to start with a number: 60. The U.S. tax code has grown so complicated that 60 percent of Americans now pay someone else to do their taxes. That's according to a recent report by the taxpayers advocate within the IRS. The message of the report is clear: The most serious problem facing taxpayers and the agency itself is the complexity of the tax code.

NPR's Scott Horsley reports.

SCOTT HORSLEY: Pretty much everyone agrees the current tax code is a mess. The IRS's own taxpayer advocate complains Americans have to spend more than 6 billion hours a year just keeping up with the paperwork.

Berkeley economist Laura Tyson says a hodgepodge of tax loopholes - or tax expenditures, as they're known - not only makes filing more complicated. It also costs the U.S. Treasury more than a trillion dollars a year.

Professor LAURA TYSON (Business Administration and Economics, University of California, Berkeley): There is a general view that tax expenditures have gotten way, way out of hand. It's a huge drain on the government's budget.

HORSLEY: So, where do all these expenditures come from? Often from good intentions. Tyson herself contributed to some as an economic advisor in the Clinton administration. Back then, the White House wanted to make it easier for low-income students to pay for college. It wound up doing so through a patchwork of tax breaks, even though Tyson says it would have been easier and more efficient to simply give students money by increasing Pell Grants.

Prof. TYSON: It was impossible. You were not going to get increase in Pell Grant spending. The budgetary committees of the Congress were not going to do that. But they were willing to do a new tax credit or more generous tax credit.

HORSLEY: You see this pattern over and over again. Congress is much more willing to approve a dollar for anything called a tax break than a dollar in direct federal spending even if the effect on government coffers is the same.

As a result, politicians now use the tax code to achieve more and more of their policy goals. Political scientist Christopher Howard of the College of William and Mary says it's a perverse bargain between the two political parties.

Professor CHRISTOPHER HOWARD (Government, College of William & Mary): Republicans in their ideal world would like major tax cuts and perhaps some spending cuts as well. Democrats still want government to do things. And where they find common ground is they can get government to do things by selectively cutting the tax code. It's sort of a convenient plan B for both parties.

HORSLEY: That's why, for example, Congress was able to pass more than $800 billion worth of tax cuts last month, in the name of shoring up the economy, at a time when a similar sized spending bill with the same goal would have had no chance.

Whatever their political appeal, Howard says many tax breaks have unintended consequences.

Prof. HOWARD: A lot of these programs are giving benefits to people who don't seem to be needy under most definitions of need and are sort of encouraging people to engage in behaviors that may not be optimal for society. So they may in fact be overinvesting in housing or overpaying for health insurance.

HORSLEY: The president's deficit commission said the government could raise more money more efficiently by doing away with tax loopholes and lowering tax rates. That won't be easy, though. Everyone likes to blame the special interests. But as the IRS's taxpayer advocate wrote: The special interests are us.

Few Americans want to give up tax breaks for mortgage interests, health insurance or retirement savings.

Dr. EUGENE STEUERLE (Senior Fellow, Urban Institute): Politicians have a tremendous problem asking the middle class to give up something.

HORSLEY: Even so, tax policy expert Eugene Steuerle of the Urban Institute thinks the time finally may have come to rewrite the tax code. Steuerle was instrumental in the last big rewrite a quarter-century ago. And with the government now deep in the red, he says something has to give.

Dr. STEUERLE: The public doesn't like playing games in the tax system either. Given a choice between raising rates and removing tax preferences, they tend to favor removing the tax preferences.

HORSLEY: A simpler code could also give taxpayers more confidence that everyone is paying a fair share. And that could have favorable economic and political effects as well.

Scott Horsley, NPR News, Washington.