January 8, 2016
The Tax Horseman
The Tax Horseman
Wow! (I wonder if the tax code writers get paid by the word). As we approach another April 15th I decided to do a little research regarding taxes. It seems to me that one of the most serious problems facing American taxpayers is the overall complexity of the tax code. The largest source of compliance burdens for taxpayers – and the IRS – is the overwhelming complexity of the tax code. There are numerous organizations and politicians stating that the only meaningful way to reduce these burdens is to simplify the tax code enormously. Let’s take a look.
Consider the following:
The federal tax code is now 187 times longer than it was a little over a century ago, according to Wolters Kluwer, CCH, which has analyzed the federal tax code since 1913.
Amazingly, in the first 26 years of the federal income tax, from 1913 through 1939 (which includes the Great Depression) the tax code only grew from 400 to 504 pages. Even through President Franklin Roosevelt’s New Deal, the tax code was well under 1,000 pages. Changes during World War II made the length of the tax code “balloon” to 8,200 pages.
Most of the growth in the tax code came in the past 30 years, growing from 26,300 pages in 1984 to nearly three times that length today.
According to a Tax Advocate Service analysis of IRS data, U.S. taxpayers and businesses spend about 7.6 billion hours a year complying with the filing requirements of the Internal Revenue Code. And that figure does not even include the millions of additional hours that taxpayers must spend when they are required to respond to an IRS notice or an audit.
It takes an average American taxpayer 13 hours to comply with the tax code, according to the IRS. Four hours of that estimate is devoted to actually completing the forms. The rest of the time is spent on record-keeping and other miscellaneous tasks.
In terms of words, the National Taxpayer Advocate did a Microsoft Word word count of the tax statutes and IRS regulations in 2012, and came up with roughly 4 million words The National Taxpayer Advocate also noted that the tax code changed 4,680 times from 2001 to 2012, an average of once per day.
If tax compliance were an industry, it would be one of the largest in the United States. To consume 7.6 billion hours, the “tax industry” requires the equivalent of 3.8 million full-time workers.
H&R Block hires 80,000 tax preparers and Jackson Hewitt hires another 25,000 to work from January until the end of April.
It is our strong belief that with this growing complexity and lack of transparency, it is more and more crucial for Americans to choose a financial team to assist them. The team should be committed to the fiduciary standard and committed to its client’s financial wellbeing. The complexity of the Code leads to perverse results. On the one hand, taxpayers who honestly seek to comply with the law often make inadvertent errors, causing them either to overpay their tax or to become subject to IRS enforcement action for mistaken underpayments of tax.
With this growing complexity and lack of transparency, it is more and more crucial for Americans to make sure they are not tripped up by these extensive rules and regulations. Taxpayers who honestly seek to comply with the law often make inadvertent errors, causing them either to overpay their taxes or become subject to IRS enforcement action for mistaken underpayment. While we are not tax professionals here at Gainplan, we can’t stress enough the importance of having a well recommended and qualified CPA as part of your financial team. If you need a referral or have questions, we are happy to point you in the right direction.
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