For new father and first owner Erik Breidenbach, this year’s tax filing season has been one of the toughest of his adult life.
Breidenbach says he spent about 12 hours working through the process by hand, as he does every year, figuring out what business expenses could be deducted, how to factor in mortgage interest payments, and sorting out the complexities of being paid in two states as a civilian and an active member of the military. Confusion over 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 the baby, I would get an incredible refund” that would at least be worth it, he says, “but no.”
It’s a frustration many Americans can relate to — and one many of us will face this weekend as the federal income tax filing deadline approaches Monday — thanks to the complexity of a federal income tax system that consumes money and time every year.
This year, Americans will spend about 6.5 billion hours trying to file their taxes, according to a new analysis from the American Action Forum (AAF), a nonprofit that has been tracking the burden of tax-related paperwork since 2017.
The total time it takes Americans to comply with tax documents, according to The AAF Tracker, has declined slightly in recent years, likely due to tax reforms passed in 2017 that expanded the standard deduction for all filers, but the overall cost of compliance has steadily increased. This year, the group estimates, Americans will spend more than $200 billion just trying to pay their taxes.
That’s an insane amount of extra expense – in terms of time and money – that isn’t going to any productive purpose.
Much of the complexity (and paperwork) of paying federal income tax stems from the federal government’s efforts to tax income multiple times, said Grover Norquist, president of Americans for Tax Reform, a a tax-conservative non-profit organization that advocates for lower taxes and flat rates. Reason. Income is taxed “once when you earn it, again if you invest and earn interest or capital gains, again if you have invested in a business subject to corporation tax, again if you’re reckless enough to die,” he said. “If they taxed your income only once – when you received it as income – it would be simpler and less damaging to your privacy.”
Some of this complexity is the natural result of a tax system that attempts to do more than just collect the revenue needed to run the federal government. The tax code attempts to balance fairness, enforceability, efficiency, and other goals that often conflict with each other. “Simplicity often loses out to other priorities,” Remarks the Tax Policy Center, a centrist think tank.
Some of the complexity is also no accident. Companies that take advantage of the complexity of the tax code – like Intuit, owner of the “TurboTax” brand –hard lobby 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 host of special interests who deploy legions of lobbyists to preserve or create the many exemptions, breaks and credits that make filing your taxes so painful. 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 of this as reason for the IRS to create its own version of a TurboTax-like software system. Instead of, you know, tackling the real 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 able to meet its existing obligations to federal taxpayers – last week IRS Commissioner Charles Rettig told the Senate Finance Committee that officers only respond on one in five phone calls taxpayers asking for help.
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 issues facing the agency. Most of them are usually related to customer service and tax code confusion in one way or another. This year’s report suggests Rettig was overstating the agency’s responsiveness to taxpayer questions: In fiscal year 2021, only 11% of phone calls were even answered. “Many taxpayers are not getting their questions answered and are frustrated,” the Taxpayer Advocate Service said. report concludes.
As part of a 1998 law aimed at improving the IRS, Congress ordered the agency to release a separate report each year detailing how to make the tax code less complex. It’s a good idea, and one that could help Congress identify productive reforms. Too bad the IRS didn’t publish such a report. since 2002.
The obvious solution to these problems is not to give the IRS more funding or to ask it to create a tax filing program that will surely be dysfunctional to compete with the private sector. President Joe Biden has offered to give the IRS a budget increase of $2.2 billion so the agency can target more tax cheats, but the president’s agenda doesn’t seem to include anything to make taxes easier to pay for everyone.
Instead, lawmakers should try to simplify the tax code so that every American can pay what is owed to them without waiting for an IRS agent. ultimately answer the phone or pay TurboTax $60 for help. The federal income tax, if it is to exist, should simply be a federal government funding tool and not used as a social engineering mechanism.
Tax Day will never be 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.