U.S. Tax Complexity Costing Americans Billions
The National Taxpayers Union released their annual report on U.S. tax complexity two weeks ago. The press release introduces the report this way:
“Our complex tax system continues to be one of the most expensive in the world, costing the American economy $228.4 billion and 6.38 billion hours per year; combined with recent Congressional legislation, it threatens to become a full-blown civil liberty crisis where no personal financial detail is your own, according to the 362,000-member National Taxpayer’s Union’s (NTU’s) 14th annual study of tax complexity.”
A bit more of the report’s overview, this time from the report’s introduction (NTU Policy Paper #130, “A Taxing Trend: The Rise in Complexity, Forms and Paperwork Burdens,” April 17, 2012):
“Like old age, tax complexity has been creeping up on us. We may not notice it one year at a time, but a review of past years’ tax documents compared to today’s forms and instructions reveals just how shockingly complicated taxes have become. And the situation may soon get even worse.
“The most recent estimate of the current paperwork burden generated by the Treasury Department, nearly all accounted for by the Internal Revenue Service (IRS), now totals 6.38 billion hours, according to data from the Office of Management and Budget (OMB). That is the equivalent of about 3.19 million employees working 40-hour weeks year-round with just two weeks off. Incredibly, it comes close to the number of workers at the four biggest retailers among Fortune 500 companies – more than all the workers at Wal-Mart Stores, McDonald’s, Target, and Kroger combined! It’s more than triple the number of workers employed at the top four banks -- Bank of America Corp., Wells Fargo, Citigroup, and J.P. Morgan Chase & Co.”
The report, authored by David Keating, NTU senior counselor, provides numerous measures of complexity. Here are a few of them:
- Line by line: in 1935, Form 1040 was 34 lines while the instruction booklet was just two pages. By 2011, Form 1040 has 77 lines, and the instruction booklelt has 189 pages.
- Compliance time burden: According to the report:
“The United States now ranks an embarrassing 131st out of 183 countries worldwide in total tax rate, a decline from 124th in the previous year’s report. Additionally, the U.S. ranked 66th worldwide for time spent complying with corporate tax filings, according to “Paying Taxes 2012,” a study jointly published by the accounting firm PricewaterhouseCoopers and the World Bank Group. In this analysis, a ranking of “1” would mean a country’s economy had the lowest rate and least onerous compliance regime, respectively.
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Tellingly, the U.S. did even worse when ranked by total tax rate alone – 131st out of 183, dropping from 124th in 2011, 118th in 2010 and 92nd out of 181 in 2009. Thirty-three countries made corporate taxpaying easier last year by cutting rates or streamlining filing processes. Unfortunately, America could not be counted among them.”
- Paid professionals now prepare most tax returns: In 1980, paid preparers signed 38.0% of all tax returns, but in 2009, that number has jumped to 60.0%.
- Tax preparation costs and fees are rising: First, NTU’s report notes, “The efficiency gain of computers and printers has been overwhelmed by the increases in complexity.” A table in the report shows the “nominal” charge by H&R Block has increased from $27.36 in 1980 to $179.07 in 2011.
Other points made in the NTU report include the opinion that “tax complexity to get worse;” perhaps even worse, “the rising threat from the specter of the AMT, a parallel and complex tax system once aimed at ensuring the rich paid a substantial tax bill;” and “experts agree they can’t agree on tax bills.”
The report’s conclusion makes several points, especially the following:
“Though there are many obstacles to reaching the simpler and less burdensome Tax Code Americans deserve, bipartisan efforts continue to make gradual inroads. The Reforming America’s Taxes Equitably (RATE) Coalition has recently been formed to unite Republicans and Democrats behind a prudent cutback in the uncompetitive federal corporate tax rate.
“Aside from the burden of paying taxes, the burden of filing taxes has become onerous in its own right. For the sake of our personal freedom and a more productive economy, policymakers must reform our tax system and reduce its complexity.”
Although the report is 11-pages long, the entire report is worth reading by American taxpayers wanting to understand just what a leviathan the Federal tax code really is. Then call one of Arlington County's Congressional representatives. Here are their phone numbers and links for e-mailing them: