Thursday, January 15, 2009

The Case for Overhauling a U.S. Tax System

Sam Dealey of recently authored an opinion piece on the need to overhaul the United States tax code. Below is a snippet from the article but you can read the full text here.

"The monopoly on good ideas does not belong to a single party," President-elect Obama reportedly told congressional leaders Monday during a private meeting about an economic stimulus package. "If it's a good idea, we will consider it."

When it comes to taxpayer money—raising, spending, and occasionally deigning to return it—neither party in Congress has demonstrated particularly good ideas lately. The majority of lawmakers seem to believe that stimulating the economy means expanding recurring welfare programs, plowing money into pet projects of only limited or short-term use, and bestowing inadequate, selective tax cuts.

But if Obama is looking for ideas, he might consult with Nina Olson, the national taxpayer advocate at the IRS. In her annual report to Congress, released yesterday, Olson makes a persuasive case for overhauling the U.S. tax system.

"The largest source of compliance burdens for taxpayers, and the IRS, is the overwhelming complexity of the tax code," Olson writes. "The only meaningful way to reduce these burdens is to simplify the tax code enormously."

It's common sense and worth a read, but a few figures stand out:

  • Americans spend 7.6 billion hours annually trying to figure out their federal taxes. Working eight-hour days, five days a week, 50 weeks a year, that's the equivalent of 3.8 million full-time workers.
  • At the average hourly wage of $27.54, that tax-preparation time amounts to $193 billion, or 14 percent of aggregate income tax receipts.
  • A staggering 60 percent of individual taxpayers are so bewildered by the tax code that they hire outside preparers. An additional 22 percent buy computer software.

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