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Originally published January 9, 2013 at 8:45 PM | Page modified January 10, 2013 at 9:40 AM

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Tax code too complicated, 10 times longer than Bible, watchdog reports

At nearly 4 million words, the U.S. tax law is so thick and complicated that businesses and individuals spend more than 6 billion hours a year complying with filing requirements, according to a report Wednesday by an independent government watchdog.

The Associated Press

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WASHINGTON — Too intimidated to fill out your tax return without help? Join the club.

At nearly 4 million words, the U.S. tax law is so thick and complicated that businesses and individuals spend more than 6 billion hours a year complying with filing requirements, according to a report Wednesday by an independent government watchdog.

That's the equivalent of 3 million people working full time, year round.

"If tax compliance were an industry, it would be one of the largest in the United States," says the report by Nina Olson, the National Taxpayer Advocate.

The days of most taxpayers sitting down with a pencil and a calculator to figure out their taxes are long gone, Olson said. Since 2001, Congress has made almost 5,000 changes to U.S. tax law. That's an average of more than one a day.

As a result, almost 60 percent of filers will pay someone to prepare their tax returns this spring. An additional 30 percent will use commercial software. Without the help, Olson says, most taxpayers would be lost.

"On the one hand, taxpayers who honestly seek to comply with the law often make inadvertent errors, causing them to either overpay their tax or become subject to IRS enforcement action for mistaken underpayments," Olson said. "On the other hand, sophisticated taxpayers often find loopholes that enable them to reduce or eliminate their tax liabilities."

Olson ranks complexity as the most serious tax problem facing taxpayers and the Internal Revenue Service in her annual report to Congress. She urges lawmakers to overhaul the nation's tax laws, making them simpler, clearer and easier to comply with.

Momentum is building in Congress to overhaul the tax code for the first time since 1986. But Washington's divided government has yet to show it can successfully tackle such a task.

President Obama and Republican leaders in Congress say they are onboard, though they have rarely seen eye to eye on tax policy. They struggled mightily just to avoid the year-end "fiscal cliff," passing a bill that makes relatively small changes in the nation's tax laws.

Undaunted, the top tax writer in the House says he is determined to pass reform legislation this year.

"This report confirms that the code is 10 times the size of the Bible with none of the good news," said Rep. Dave Camp, chairman of the House and Ways and Means Committee. "Our broken tax code has become a nightmare of loopholes and special interest provisions that create added complexities and costs for hardworking taxpayers and small businesses."

"Comprehensive tax reform will make sure everyone is playing by the same rules and help businesses create more jobs and invest in their workers," Camp said.

The general formula for tax reform is widely embraced on Capitol Hill: Eliminate or reduce some tax credits, exemptions and deductions and use the additional revenue to pay for lower income-tax rates for everyone. There is, however, no consensus on which tax breaks to scale back.

That's because Americans like their credits, deductions and exemptions — the provisions that make the tax law so complicated in the first place. Would workers want to pay taxes on employer-provided health benefits or on contributions to their retirement plans? How would homeowners feel about losing the mortgage-interest deduction?

Those are the three biggest tax breaks in the tax code, according to congressional estimates. Together, they are projected to save taxpayers nearly $450 billion this year.

In all, taxpayers will save about $1.1 trillion this year by taking advantage of tax breaks, according to the Joint Committee on Taxation, the official scorekeeper for Congress. That's almost as much as individuals will pay in income taxes.

Obama has repeatedly said he wants to eliminate tax breaks for hedge-fund managers and companies that buy corporate jets. Throughout the recent fiscal-cliff debate, House Speaker John Boehner said he favored raising additional tax revenue by reducing unspecified tax loopholes rather than raising income-tax rates.

Olson defines "loopholes" as tax breaks that benefit someone else. She warns that targeting only narrow provisions won't raise enough revenue to significantly lower rates or make the law much simpler.

"That's what we've been trying to say to taxpayers, that the special interests are us. It's not just oil and gas or whatever you want to point your finger at," Olson said. "That's not where the money is."

'Cliff' fight delays

IRS tax processing

The Internal Revenue Service said Wednesday it would start processing individual tax returns on Jan. 30, eight days later than it had planned, because of the various changes to tax laws made in the fiscal-cliff deal.

The deal on taxes will allow the IRS to start processing most electronic and paper returns on Jan. 30. The agency said there is no advantage to sending in paper returns before that date because it would not process them.

To speed tax refunds, the IRS urged people to file electronically and have their refunds deposited directly into their bank accounts.

Although the vast majority of households — about 120 million of them — will be able to file starting Jan. 30, some people with more complex tax issues won't be able to start filing until late February or March because of additional changes the IRS needs to make based on the fiscal-cliff deal.

That group includes filers using more than two dozen forms to claim specialized tax credits, such as those for alternative-fuel vehicles, residential energy equipment, depreciation of property and several other business-related provisions, the IRS said.

— Los Angeles Times

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