The Corner

We Still Need a Simpler Tax Code

No kidding. Over at the Wall Street Journal, the Internal Revenue Service’s national taxpayer advocate, Nina Olson, gives some pretty striking data about the tax code’s complexity and what it means for taxpayers. She writes:

– 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.

Read and weep (or, probably more wisely, go get started on filing your taxes).

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