Thursday, April 08, 2010

The Joy of Tax

As thousands of Americans across the country are spending hours working on their tax returns to meet the tax deadline, Nina Olson – the National Taxpayer Advocate – is once again calling on Congress to simplify the U.S. tax code. Although Olson makes this request every year, according to the Economist she has reportedly become fed up that her professional opinion is being ignored.

The federal tax code, which was 400 pages long in 1913, has swollen to about 70,000. Americans now spend 7.6 billion hours a year grappling with an incomprehensible tangle of deductions, loopholes and arcane reporting requirements. That is the equivalent of 3.8m skilled workers toiling full-time, year-round, just to handle the paperwork. By this measure, the tax-compliance industry is six times larger than car-making.

Every year, the national taxpayer advocate issues a report begging Congress to simplify the system. In her most recent one, published on December 31st, Ms Olson frets that she is repeating herself. She refers Congress to what she said the previous year. An incredible 82% of taxpayers are so flummoxed that they pay for help. Some 60% hire an accountant or tax preparer, while another 22% use tax software. She might have added that even the head of the Internal Revenue Service, Douglas Shulman, gets someone else to do his taxes.

President Barack Obama says he wants to simplify the tax code. But he has just added a ton of health-care-related provisions to the system. And even if he were zealous about simplification, he would find it hard.

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