For new father and first-time homeowner Erik Breidenbach, this year's tax-filing season was one of the more difficult of his adult life.
Breidenbach says he spent about 12 hours working through the process by hand, as he does every year, figuring out which business expenses could be deducted, how to factor in the mortgage interest payments, and sorting through the complexities of getting paid in two states as a civilian and an active-duty member of the military. A mix-up involving the amount of federal taxes withheld from his wife's paycheck created another headache. When it was all over, "I thought with the house and baby I would get some amazing refund" that would at least make the effort worth it, he says, "but nope."
It's a frustration that many Americans can relate to—and one that lots of us will be dealing with this weekend, as the federal income tax filing deadline looms on Monday—thanks to the complexities of a federal income tax system that consumes money and time every year.
This year, Americans will spend an estimated 6.5 billion hours trying to file their taxes, according to a new analysis by the American Action Forum (AAF), a nonprofit that has been tracking the burden of tax-related paperwork since 2017.
The aggregate time it takes for Americans to comply with income tax paperwork, according to the AAF's tracker, has fallen a bit in recent years—probably due to the tax reforms passed in 2017 that expanded the standard deduction for all filers—but the overall cost of compliance has kept on growing. This year, the group estimates, Americans will spend more than $200 billion just trying to pay their taxes.
That's an insane amount of added expense—in terms of time and money—being put toward no productive ends whatsoever.
Much of the complexity (and paperwork) of paying federal income taxes flows from the federal government's effort to tax income many times, Grover Norquist, president of Americans for Tax Reform, a fiscally conservative nonprofit that advocates for lower taxes and flatter rates, tells Reason. Income is taxed "once when you earn it, again if you invest and receive interest or capital gains, again if you invested in a company that is subject to the corporate income tax, again if you are imprudent enough to die," he says. "If they taxed your income one time—when you received it as income—it would be simpler and be less damaging to your privacy."
Some of that complexity is the natural result of a tax system that attempts to do a lot more than simply collect the revenue necessary to run the federal government. The tax code attempts to balance fairness, enforceability, efficiency, and other goals that are often in conflict with one another. "Simplicity often loses out to other priorities," notes the Tax Policy Center, a centrist think tank.
Some of the complexity is not an accident, either. Companies that profit off the complexity of the tax code—like Intuit, which owns the "TurboTax" brand—lobby hard to block changes that would make it easier for Americans to do their taxes without help. They have plenty of help in the form of a multitude of special interests that deploy legions of lobbyists to preserve or create the many exemptions, breaks, and credits that make filing your taxes such a pain. That's why the idea of a postcard-sized tax form has always been a pipe dream.
Some politicians, including Sen. Elizabeth Warren (D–Mass.), see all that as a reason for the IRS to create its own version of a TurboTax-like software system. As opposed to, you know, addressing the actual problem: the complexity of the tax code.
Relying on the IRS for more aspects of the tax-filing process seems like a recipe for more pain and frustration. Indeed, the IRS is barely capable of meeting its existing obligations to federal taxpayers—last week, IRS Commissioner Charles Rettig told the Senate Finance Committee that agents only answer about one in every five phone calls from taxpayers seeking assistance.
How many of those 6.5 billion hours were spent on hold, one wonders.
Each year, the IRS Taxpayer Advocate Service submits a report to Congress that includes a summary of the biggest problems facing the agency. Most of them are usually related to customer service and the confusion created by the tax code, in some way or another. This year's report suggests that Rettig was exaggerating the agency's responsiveness to taxpayer questions: During fiscal year 2021, only 11 percent of phone calls were even answered. "Many taxpayers are not getting answers to their questions and are frustrated," the Taxpayer Advocate Service's report concludes.
As part of a 1998 law aimed at improving the IRS, Congress directed the agency to publish a separate report each year detailing how to make the tax code less complex. That's a good idea, and one that could help Congress identify productive reforms. Too bad the IRS hasn't published such a report since 2002.
The obvious solution to these problems is not giving the IRS more funding or directing it to create a sure-to-be-dysfunctional tax-filing program to compete with the private sector. President Joe Biden has proposed giving the IRS a $2.2 billion budget increase so the agency can target more tax scofflaws, but the president's agenda doesn't seem to include anything about making taxes easier for everyone to pay.
Instead, lawmakers should try to simplify the tax code so every American can pay what is owed without waiting for an IRS agent to finally answer the phone or shelling out $60 to TurboTax for help. The federal income tax, if it is to exist at all, should be simply a tool for funding the federal government—not used as a mechanism for social engineering.
Tax Day is never going to be something worth celebrating. But it would be nice to spend fewer hours trying to figure out what you owe the IRS—or what the IRS owes you.
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