Policy

Taxpayer Advocate Says Tax Code is "Unconscionable Burden," Suggests Junking the AMT

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If there's one word that appears over and over in National Taxpayer Advocate Nina Olson's 2012 Annual Report to Congress, it's "burden" and variations thereof. A quick search found 25 repetitions of "burden," "burdens" or "burdensome" just in the executive summary (PDF), not counting the table of contents (it's a long executive summary). Notably, she says in the chapter on the complexity of the tax code (PDF), "the existing tax code inflicts significant, even unconscionable, burden on taxpayers, and Congress could alleviate much of that burden by vastly simplifying the tax code."

Welcome to our world, Nina. But tell us, just how burdensome is the tax code?

An analysis of IRS data by the Office of the Taxpayer Advocate shows it takes U.S. taxpayers (both individuals and businesses) more than 6.1 billion hours to complete filings required by a tax code that contains almost four million words and that, on average, has more than one new provision added to it daily. Indeed, few taxpayers complete their returns without assistance. Nearly 60 percent of taxpayers hire paid preparers and another 30 percent rely on commercial software to prepare their returns.

The report offers an interesting assessment of the Alternative Minimum Tax, too, that addendum to the tax code intended to make sure that everybody their fair share of the cost of running our oh-so-wonderful federal government.

The AMT was originally enacted to ensure that the wealthiest U.S. taxpayers pay at least some tax each year by adding back into income certain tax benefits known as "tax preferences." Yet in 2008, 87 percent of all tax preferences that gave rise to AMT liabilities was attributable to the disallowance of personal exemptions and the deduction for state and local taxes. Only under the unique logic of the AMT are the acts of having a large family and living in a high-tax state viewed as a tax dodge.

The report calls for the AMT to be repealed.

Less praiseworthy is Olson and company's insistence that the Internal Revenue Service suffers "significant and persistent underfunding," and that its budget should be hiked and then separated from the rest of the federal budget to shield it from cuts. Given the IRS's history of enforcing stupid rules in incredibly abusive ways, the idea of giving the agency more resources with which to send its licensed muggers prowling the highways and byways seeking out victims sends a bit of a chill down the old spine.

Thanks for recognizing the "burdensome" complexity of the tax code and the utter foolishness of the rules enforced by the IRS, Nina. Under the circumstances, I hope you'll forgive us if we hesitate to sign on to your proposal to further empower tax collectors.