Complexity is a subsidy for those who can afford a really good accountant. It’s as simple as that.
We also wondered: Why does it matter to the average taxpayer that the tax code is hard to comprehend? Do Americans actually read the tax code, especially now that software programs make it easy to file taxes with a few mouse clicks?
It is not the rich and powerful who are hurt by the fact—the true fact— that the tax code is longer than the Bible. And, since the Washington Post brought it to our attention, longer than the entirety of the Harry Potter series, if you prefer a more secular comparison. Who is hurt?
It is regular folks who don’t have the time or resources to unearth every last ever-loving carve-out and benefit from the mountain of cross-references and regs our leaders have seen fit to lay upon us. It is regular folks who spend, conservatively, 13 hours a year of their precious time preparing their taxes instead of producing for the economy or spending time with their kids. It is regular folks who lose money they rightfully earned because it’s easier to just let the government have it—they’ve helpfully already taken it from our paychecks!—than to puzzle out how to get a fraction of it back. It is regular folks who make good-faith efforts to keep enough of their hard-earned cash and because of the impenetrable, subjectively interpreted morass that is the law, leave themselves open to audits and bills. It is regular folks who estimated their income incorrectly and will be hit with an Obamacare clawback bill.
Furthermore, as a moral issue, if you’re taking money from people they’ve earned, make it as simple as possible for them to give it to you. The tax code operates like a dead-beat relative asking you for a loan and then making you run a Wipeout course that ends in a Polar Bear Plunge before he’ll take the check, all the time reminding you he spent a generous portion of your last check on meth and Flaming Hot Cheetos. Your brother-in-law Darren wouldn’t get away with that and the federal government shouldn’t either. But Darren has a lot more power when he has the power to jail you for not coughing up the cash.
But, in the words of the great poet philosopher LeVar Burton, you don’t have to take my word for it.
In 2012, the Taxpayer Advocate Nina Olson, who is required by law to submit a report on the IRS’ “Most Serious Problems” annually put Tax Code complexity No. 1 on the list. It was literally No. 1 on the IRS’ own list of its Most Serious Problems:
Since then, under the bold leadership of Commissioner John Koskinen (D-Chutzpah), the IRS has gone back to putting lack of funding at the top of its list, but let’s stipulate that the 2012 report was no relic of the Bush era, coming as it did smack dab in the middle of Obama’s term. The tax code has not been greatly simplified since then, so the Washington Post can rest assured that even the Obama IRS thinks tax complexity is a significant problem for average taxpayers:
1. According to a TAS 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
2. And that figure does not even include the millions of additional hours that
taxpayers must spend when they are required to respond to an IRS notice or an audit.
If tax compliance were an industry, it would be one of the largest in the United States.
To consume 7.6 billion hours, the “tax industry” requires the equivalent of 3.8 million
3. Compliance costs are huge both in absolute terms and relative to the amount of tax
revenue collected. Based on Bureau of Labor Statistics (BLS) data on the hourly cost
of an employee, TAS estimates that the costs of complying with the individual and
orporate income tax requirements in 2006 amounted to $193 billion – or a staggering
14 percent of aggregate income tax receipts.
4. 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 in 2008 alone.
5. The Code has grown so long that it has become challenging even to figure out how
long it is. A search of the Code conducted in the course of preparing this report turned
up 3.7 million words.
6. A 2001 study published by the Joint Committee on Taxation
put the number of words in the Code at that time at 1,395,000.
7. A 2005 report by a tax research organization put the number of words at 2.1 million, and notably, found that
the number of words in the Code has more than tripled since 1975.
Then there’s the Urban Institute/Brookings Tax Policy Center with a piece on the cost of the complexity of the tax code. A few tidbits (though, it looks like some of these bullet points need to be updated with current study numbers):
Another study found that although the average taxpayer reported spending 27.4 hours on filing income tax returns and related activities, 30 percent spent less than 5 hours, and 15 percent spent between 5 and 10 hours. At the high end, 11 percent spent 50 to 100 hours, and 5 percent spent more than 100 hours. Out-of pocket costs averaged $111 (in 2007 dollars), but 49 percent of filers had no such costs, and another 17 percent had costs below $84 (in 2007 dollars). Slightly over 7 percent of taxpayers spent more than $337 (in 2007 dollars). High-income and self-employed taxpayers spent the most time and money preparing their taxes.
Information on the use of paid preparers gives further hints about how complex individuals find the system to be. In 1998, 53 percent of tax filers used paid preparers. Among those who filed the 1040, 64 percent used preparers. Even among 1040A and 1040EZ filers, 35 percent used preparers. It is unclear, however, whether these figures indicate that individuals are using paid preparers because they cannot navigate the tax code themselves, or whether they simply prefer to pay others to do their taxes.
So, the Washington Post can stop wondering. It matters to the average taxpayer that the tax code is hard to comprehend.