Tax Code Complexity Is Growing Burden

Tax Code Complexity Is Growing Burden
July 1, 2007

Pete Sepp

Pete Sepp is executive vice president of the National Taxpayers Union. (read full bio)

Americans who struggled to finish their tax returns in April needed more than a little aspirin and a lot of luck to cope with new filing burdens and increased costs, according to the nonpartisan National Taxpayers Union's (NTU) annual study of tax law complexity trends.

Taxpayers using any of the 1040 tax form series spent an average of 24.2 hours and $207 completing their returns this year, up from 23.3 hours and $179 three years ago.

"The federal income tax system has become so complex that no one outside or even inside the Internal Revenue Service understands it," said NTU senior counselor and study author David Keating. "Last year taxpayers were forced to give up half a billion hours more of their time than they did in the year 2000, all because of new IRS paperwork burdens."

The NTU study, released April 16, is the ninth comprehensive examination of tax code complexity the group has conducted since 1999. It provides long-term data on increasingly daunting obstacles in the task of complying with IRS demands.

Burden Grows

Among the findings of the study:

 

  • Americans spent 6.65 billion hours in 2006 complying with federal tax laws. The IRS accounts for nearly four of every five paperwork burden hours imposed by the entire federal government.

 

 

  • Approximately 3.45 billion of those hours were incurred by businesses. The value of this time is $156.5 billion--an amazing 44 percent of total corporate income taxes collected in 2006.

 

 

  • When examining all individual taxpayers, from those who file the simplest 1040EZ to those using the 1040 long form, the average compliance time (not including tax planning or minimization strategies) surged past a full day (24.2 hours), according to the most recent data. According to a 2006 IRS estimate, self-employed taxpayers had to toil for more than 80 hours to satisfy filing requirements.

 

 

  • Counting expenses for software, tax preparers, postage, etc., along with time, individuals incurred an incredible $102 billion in expenses to meet the IRS's tax-filing rules.

 

 

  • Although computers and printers have gained dramatically in capacity over the past 10 years, this efficiency has likely been overwhelmed by tax complexity. The average fee charged by tax preparer H&R Block increased roughly 150 percent during that period (unadjusted for inflation), even as the ratio of taxpayers using computers or paid preparers rose from seven in 10 to nine in 10.

 

 

  • Between the 108th and 109th Congresses, the Joint Committee on Taxation's General Explanation of Tax Legislation went from 593 to 841 pages--a 42 percent increase.

 

'Hopelessly Muddled'

Keating noted the Alternative Minimum Tax, a Byzantine scheme that may trap more than 30 million taxpayers by 2010, could make compliance burdens much worse before they get better.

"America's hopelessly muddled tax system is already sagging under the weight of its own complexity," Keating said. "Hopefully, policymakers will recognize this crisis by considering fundamental tax reform this year, so our civil liberties and our economy won't suffer any longer."


For more information ...

NTU Policy Paper 124, "A Taxing Trend: The Rise in Complexity, Forms, and Paperwork Burdens," http://www.ntu.org/main/press_papers.php?PressID=926&org_name=NTU

Pete Sepp

Pete Sepp is executive vice president of the National Taxpayers Union. (read full bio)