Erik Breidenbach was a new father, and first-time homebuyer. This tax filing season proved to be one of his most difficult.
Breidenbach said that he worked through the entire process manually for 12 hours. He was figuring out how business expenses can be deducted and what mortgage interest payments should be included. Also, sorting through the difficulties of being paid as both a civilian or active-duty military member. Another problem was the federal tax withholding from his wife’s pay check. He said that he thought with his baby and house that he would be able to get an amazing refund, which would make it worth the effort.
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.
According to the American Action Forum, a non-profit that tracks the tax burden since 2017, Americans will spend 6.5 billion hours filing their taxes this year.
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—the overall cost of compliance has kept on growing. The group predicts that Americans will spend $200 billion to help pay their taxes this year.
That’s an insane amount of added expense—in terms of time and money—being put toward no productive ends whatsoever.
Grover Norquist of Americans for Tax Reform (a conservative fiscal nonprofit advocating for lower taxes) says that a lot of the paperwork and complexity involved in paying federal income taxes comes from the federal government’s efforts to tax income multiple times. There are reasons. His explanation is that income is taxed when it’s earned. It is also taxed again if there is interest in your investments or capital gains. And again, if the corporation is subject to corporate income taxes, and again if someone is unfortunate enough to die. “If they taxed your income one time—when you received it as income—it would be simpler and be less damaging to your privacy.”
Complexity is a result of tax systems that attempt to do more than collect revenue for the federal government. Tax code attempts to strike a balance between fairness and enforceability. It also aims at efficiency. According to the Tax Policy Center (a centerist think tank), simplicity often wins out over other priorities.
The complexity of some tax codes is not accidental. 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. Many special interests have a lot of support in the form of their legions of lobbyists who work to protect or create many of the exemptions, credits, and breaks that make tax filing so tedious. 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.The IRS sees all this as an opportunity to develop its own TurboTax-like software program. This is in contrast to addressing the real problem, which is the complex tax code.
It seems that relying on IRS to handle more tax-filing processes is a recipe for frustration and more pain. 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.
One wonders how many hours of that 6.5 billion were on hold.
Each year, the IRS Taxpayer Advocate Service submits a report to Congress that includes a summary of the biggest problems facing the agency. Many of these problems are related to customer service or the complexity created by tax codes. The report this year suggests that Rettig exaggerated the agency’s response to taxpayer questions. Only 11 percent of calls during fiscal year 2021 were answered. “Many taxpayers are not getting answers to their questions and are frustrated,” the Taxpayer Advocate Service’s report concludes.
Congress gave the authority to the IRS in 1998 to produce a separate annual report that detailed how the IRS could simplify its tax code. It’s an excellent idea that can help Congress to identify potential reforms. It’s a shame that the IRS has not published such a document 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. Although President Joe Biden suggested that the IRS be given a budget increase to $2.2Billion to help target more tax scofflaws and to make it easier to file taxes, his agenda seems to not include any mention of making it simpler for taxpayers to do so.
Instead, legislators should work to simplify the tax code to make it easier for Americans to pay their taxes without having to wait for an IRS agent. FinallyCall TurboTax or answer the telephone for assistance. 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 will not be something that is 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.