3.7 Million Words in U.S. Tax Code
Kurt Brouwer April 11th, 2009
It’s a bit excessive don’t you think? That is, the U.S. tax code with its 3.7 million words, many thousands of pages and near-daily changes. IRS National Taxpayer Advocate Nina Olson writes in the Wall Street Journal piece about the national nightmare that is our tax code.
We Still Need a Simpler Tax Code (Wall Street Journal, April 10, 2009, Nina E. Olson)
As the national taxpayer advocate, I am required to report to Congress each year on the most serious problems facing U.S. taxpayers. With April 15 fast approaching, it will come as no surprise to many frustrated taxpayers that the complexity of the tax code tops my list.
Every year taxpayers and elected officials complain about the tax law’s complexity. But despite the exasperation, no significant simplification has occurred since the landmark Tax Reform Act of 1986. To the contrary, each new tax proposal is layered onto the existing code, rendering it more complex with every new act.
Consider the following:
- According to my office’s analysis of IRS data, U.S. taxpayers and businesses spend about 7.6 billion hours a year complying with the filing requirements of the Internal Revenue Code.
- If tax compliance were an industry, it would be one of the largest in the United States. To consume 7.6 billion hours, such a “tax compliance industry” would require the equivalent of 3.8 million full-time workers.
- Compliance costs are huge both in absolute terms and relative to the amount of tax revenue collected. Based on Bureau of Labor Statistics data on the hourly cost of an employee, my office estimates that the costs of complying with individual and corporate income tax requirements in 2006 amounted to $193 billion — or a staggering 14% of aggregate income tax receipts.
- More than 80% of individual taxpayers find the process of filing tax returns so overwhelming that they pay for help. About 60% of taxpayers pay preparers to do the job, and another 22% purchase tax software to help them perform the calculations themselves.
- Since the beginning of 2001, there have been more than 3,250 changes to the tax code — an average of more than one a day — including more than 500 changes last year alone.
- The tax code has grown so long that it’s challenging even to figure out its length. A search of the code conducted in the course of preparing my last report turned up 3.7 million words. A 2005 study by the Tax Foundation, a tax research organization, found that the number of words in the code has more than tripled since 1975.
But most importantly, the complexity of the tax code leads to perverse results. On the one hand, taxpayers who honestly seek to comply with the law often make inadvertent errors, causing them either to overpay, or to become subject to IRS enforcement actions for mistaken underpayments. On the other hand, sophisticated taxpayers often find loopholes that enable them to reduce or eliminate their tax liabilities…
Let’s see: on this last point, I could not help but note this continuing stream of political appointees who have not paid their taxes. I don’t view this as a deliberate matter, although some of these — such as Tom Daschle’s failure to pay $140,000 in back taxes until he was nominated for a Cabinet post — were very big deficiencies. Treasury Secretary Geithner’s failure to pay taxes until his appointment also comes to mind.
I tend to think that our tax system is so complex that well-intentioned people can easily make significant mistakes. However, I do have to note the fact that these folks are getting pretty favorable treatment once these things come to light.
Imagine what the IRS would do to you if you failed to pay $140,000 in taxes as Senator Daschle did? Also, isn’t it incumbent upon a sitting governor or senator or the Treasury Secretary who oversees the IRS to be especially careful with preparing tax returns?
- Business , Economy , Geopolitics , Money , income taxes
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There is a simple solution to this problem: the FairTax. The legislation has been introduced in both Houses of Congress. It would abolish the entire income tax system and replace it with a national sales tax. It is all laid out on http://www.fairtax.org.
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