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Federal Tax Comlexity by the Numbers

Our friends at the National Taxpayers Union Foundation (NTUF) is out with their annual analysis measuring the complexity of federal taxes. Here's the report's summary of findings in two paragraphs -- A Complex Problem: The Compliance Burdens of the Tax Code (Policy Paper No. 176):

"National Taxpayers Union Foundation’s (NTUF’s) annual analysis of tax complexity in the United States reveals yet another year of unconscionable burdens on America’s taxpayers and businesses, finding that compliance with the federal income tax cost the economy $233.8 billion in productivity last year.

"Out-of-pocket expenses like software and other tax preparation assistance tallied $31.7 billion, combined with an estimated $202.1 billion cost due to 6.1 billion hours in lost labor spent complying with the Tax Code this past year."

There's more, however. In their press release, NTUF adds:

"Additionally, a new analysis of the Affordable Care Act’s (ACA’s) impact on complexity found 3,322 pages of legal guidance related to the ACA added to IRS.gov - this overlaps partially with 1,865 pages of new ACA regulations.

"Americans face a rising tax complexity burden that essentially prevents anyone from being able to comply without assistance,” Study author and NTUF Policy Analyst Michael Tasselmyer said. “This year’s study gives an indication of future challenges, revealing the additional complications the Affordable Care Act will add to the Tax Code and filing.”

"NTUF’s report also highlights complexity issues related to the Foreign Account Tax Compliance Act (FATCA), heavier paperwork burdens, taxpayer service challenges, and identity theft."

Two numbers are worth keeping in mind. In 1935, IRS Form 1040 considered of only 34 lines. By 2014, the number of lines on Form 1040 has grown to 79 lines. The second number to keep in mind is the number of pages in the Form 1040 Instruction Booklet. The number has grown from two pages in 1935 to 209 pages in 2014, but it's not that simple since NTUF had to add these asterisks:

"*Excludes one extra page in the IRS’s online PDF version regarding donations for Philippines typhoon relief.

"**The IRS did not include instructions for Form 1040 schedules in this edition of the instruction booklet. The 2014 For 1040 instructions amounted to 104 pages. Instructions for Form 8949 and Schedules A, C, D, E, F, R, and SE (which were included in the 2013 Form 1040 instructions) totaled 105 pages."

Finally, here are the key findings from the report:

  • According to the IRS National Taxpayer Advocate, the total time burden of tax compliance totals an astounding 6.1 billion hours this year.
That is the equivalent of 152.5 million 40-hour workweeks. It would take 59,580 American workers working every week with no days off from age 18 until reaching the full Social Security retirement age of 67 to account for that much time. (emphasis added)
  • The total compliance cost is $233.813 billion a year, including $31.72 billion spent on tax software and other out-of-pocket costs along with $202.093 billion in labor costs.
  • Taxpayers or professionals looking for legal guidance on the Affordable Care Act will have to wade through 3,322 pages of legal guidance posted on IRS.gov – including regulations (1,077), Treasury decisions (1,377), notices (669), revenue procedures (100), and revenue rulings (12).
  • The Treasury’s paperwork burden (most of it due to taxes) imposed on the public has grown from 6.4 billion hours to 7 billion hours over the period from fiscal year 2005 to 2013, never making up less than 74 percent of the burden imposed by all government agencies combined.
  • Paid preparers and tax preparation software account for 94 percent of returns. Meanwhile, the average retail fee per return for H&R Block has nearly tripled since 1980.
  • Last year, the IRS responded to over 50 percent of its correspondence outside of established timeframes. Nearly 4 out of every 10 taxpayers calling for assistance were unable to get through to an agent.

Growls readers fully understand the complexity of the federal tax system, and know that it must be reformed -- both for simplicity's sake as well as to facilitate economic growth. Consequently, readers are encouraged to tell their Congressional representatives to take action to simplify the federal tax system, preferably with a flat tax that can be prepared on a 3X5 postcard. Contact information is available at Thomas (use left-hand column). Taxpayers living in Virginia's Arlington County, should contact:

  • Senator Mark Warner (D) -  write to him or call (202) 224-2023
  • Senator Tim Kaine (D) -- write to him or call (202) 224-4024
  • Representative Don Beyer (D) -- write to him or call (202) 225-4376.

Ask for a written response. And, tell them ACTA sent you.

Kudos to the National Taxpayers Union (NTU) and the National Taxpayers Union Foundation (NTUF) for their continued efforts at pointing out the complexity of our tax system.

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