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Tax Law Complexity Increasing, NTU Study Reveals

by Glen Shapiro,, New York

20 April 2007

The National Taxpayers Union's annual study of tax law complexity trends this week revealed that US taxpayers using any of the 1040 tax form series will spend 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," observed 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 is the ninth comprehensive examination of Tax Code complexity the group has conducted since 1999, and thus provides long-term data on how citizens have faced increasingly daunting obstacles in the task of complying with IRS demands.

Among the findings of the study were that:

  • Americans spent 6.65 billion hours in 2006 complying with the tax laws; the IRS accounts for nearly 4 out of every 5 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, which represents 44% 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. However, individual situations varied greatly. According to a 2006 IRS estimate, self-employed taxpayers had to toil for over 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 complexity. The average fee charged by H&R Block increased roughly 150% during that period (unadjusted for inflation), even as the ratio of taxpayers using computers or paid preparers rose from 7 in 10 to 9 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% increase.

Keating noted that the Alternative Minimum Tax, a Byzantine scheme that could trap over 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," he concluded. "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."

The topic of simplifying the US tax regime was also uppermost in the mind of US Republican presidential candidate Sen. Sam Brownback (R-Kansas), who earlier this week took the opportunity to push his proposals to simplify the US tax code, including a form of flat tax.

Although Brownback has not yet finalised his ideas into concrete proposals, he said that one option he is considering would give taxpayers an element of choice regarding how they pay and file their taxes for a pre-determined period, likely to be about five years.

The Kansas Senator has previously argued that the need for a new Federal tax system is "urgent", describing the current tax code as "confusing, complex, and overly burdensome".

"In 2003 alone, $203 billion were spent just on preparing taxes; increases in the tax law's complexity have added roughly 1 billion hours in annual paperwork over the last 10 years," Brownback noted in a statement posted on his website.

He has pointed out that the 2003 1040 Form contained 73 lines, up from 68 lines in 1985 and 34 lines in 1935. Meanwhile, the 2003 Instruction Booklet for the 1040 has grown to 131 pages in length, from 52 pages in 1985 and 2 pages in 1935.

"Hard working American taxpayers spend too much of their time and money preparing their taxes each year. It is time for the Federal government to sunset the Internal Revenue Code of 1986, and move to a simple, fair alternative system," his statement added.

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