Since I was planning a two-week trip to Israel this month, I considered applying for an extension of the deadline for filing my income tax return. As will soon become apparent, this was something I'd never done before.
It turns out you can put off doing your taxes for up to six months, but you still have to pay your taxes by April 17. To pay your taxes, however, you have to do your taxes–i.e., run the numbers to determine how much you owe. You could guess, but there's a penalty for guessing wrong.
Then I noticed you can get an automatic two-month extension, with no application or payment required, "if, on the regular due date of your return, you are 'out of the country.'" This is the extension for me, I thought.
I was wrong. Although I would be literally out of the country, I would not be legally "out of the country." Not only is being abroad not enough to place you "out of the country," I discovered, but you can be legally "out of the country" even if you're actually in the U.S. on the filing deadline. I already had a headache, and I hadn't even begun working on my return.
Which reminds me of a riddle: How is a mugger different from the Internal Revenue Service? Both take your money, but the mugger doesn't make you fill out forms.
Every year the Tax Foundation calculates the cost of this added indignity. Since it's hard to put a dollar figure on annoyance and anxiety, the Washington-based think tank sticks to estimating the time involved in keeping records and completing returns: some 6 billion hours in 2005.
The group's analysts multiply these hours by the average hourly compensation for professional tax preparers or, for the share of taxpayers who file their own returns, the average hourly compensation for U.S. workers. The resulting figure represents the cost of complying with the federal income tax, which the Tax Foundation projects will be $279 billion this year.
That amounts to 22 cents for every dollar collected, about the same as in 2005 but up from 14 cents in 1990. And the compliance burden does not include the costs associated with litigating tax disputes, operating the IRS and the U.S. Tax Court, or tax planning aimed at minimizing liability.
Not surprisingly, compliance costs have increased as the tax code has become more complicated. The number of words dealing with income taxes in the Internal Revenue Code and IRS regulations rose nearly tenfold between 1955 and 2005, from 718,000 to more than 7 million.
This complexity not only maddens taxpayers; it undermines the rule of law. When you can ask five different experts the same tax question and get five different answers, even taxpayers who make a good-faith effort to follow the government's instructions cannot be confident they are complying with the law. As a result, they are exposed to legal and financial peril every time they file their returns.
To add insult to injury, the money extracted through this arduous, intimidating process may be spent on the Stanley Theater in Utica, the Museum of Glass in Tacoma, or the Bulgarian-Macedonian National Education and Cultural Center in Pittsburgh. These institutions are among the beneficiaries of the spending earmarks cataloged by Citizens Against Government Waste in its latest Congressional Pig Book.
It's true such pork accounts for a small percentage of the federal budget. But here's another way of looking at it: If you pay $10,000 a year in federal income taxes, your entire contribution amounts to just 1 percent of this year's subsidy for the Waterfree Urinal Conservation Initiative and 0.07 percent of the money allotted to the International Fund for Ireland, sponsor of the World Toilet Summit. Now you know you were literally correct when you speculated about where your tax dollars were going.