An Uncivil Income Tax System
Each year in the United States, an estimated 6.1 billion hours are spent complying with the federal tax code. I’m pretty sure at least half of those hours are spent by me.
With less than two weeks remaining before this year’s tax returns are due, I’ve barely made a dent in my stack of forms, receipts, and instructions. Each year the prospect of doing my taxes looms more daunting and dismal than the year before. Each year I wonder where I’ll find the time, never mind the patience, to get it done. Each year’s tax ordeal seems to require more mental energy, more double-checking of math, more scouring of check registers and credit-card statements and brokerage records. And yet when I finally hit that “Send” button, I’m less certain than ever that I haven’t inadvertently screwed something up. And if that’s true for someone like me, whose financial arrangements are not especially abstruse, how much more miserable tax season must be for taxpayers whose circumstances are more elaborate.
Some people claim they file their tax returns cheerfully. They approvingly quote Oliver Wendell Holmes Jr.‘s dictum that “taxes are what we pay for civilized society.” I quote instead that eminent commentator Dave Barry: “It’s income-tax time again, Americans: time to gather up those receipts, get out those tax forms, sharpen up that pencil and stab yourself in the aorta.”
Not surprisingly, the Internal Revenue Service embraces Holmes’s words. They are chiseled over the entrance to the IRS headquarters in Washington, DC. Yet I doubt whether Holmes, who retired from the Supreme Court in 1932, would think there was anything civilized about what the federal tax system has turned into, or the burdens, confusions, and complexity it imposes on honest taxpayers.
When Holmes first expressed that sentiment about taxes and civilization in a 1904 speech, the federal income tax didn’t even exist. That had changed by 1927, when Holmes’s phrase appears in one of his dissenting opinions. But even then, all of federal tax law — not just the Sixteenth Amendment and Revenue Act of 1913, but the entire corpus of related regulations, rulings, and forms — took up fewer than 500 pages. Today, the Standard Federal Tax Reporter runs to 73,608 pages in 25 volumes, and consumes nine feet of shelf space.
Is it any wonder, then, that the paperwork, record-keeping, calculations, form-preparation, and filing procedures required to pay federal taxes have become one of the great soul-crushing time sinks in American life? Or that the National Taxpayer Advocate (the independent ombudsman within the IRS) declared flatly last year that “the most serious problem facing taxpayers — and the IRS — is the complexity of the Internal Revenue Code”? Or that the Tax Foundation concluded in 2005 that income-tax compliance costs amounted to a stunning $265.1 billion — in effect, “a 22-cent … surcharge for every dollar the income tax system collects”?
By now the great majority of individual tax filers has decided that putting together their tax returns without paying for help isn’t feasible. According to a 2011 MarketTools study, only 12 percent of U.S. taxpayers still complete their federal income taxes without hiring an accountant, visiting a tax-preparation firm such as H&R Block, or buying tax-preparation software. I gave up trying to prepare my returns by hand years ago; like tens of millions of other Americans, I now put my fate in the hands of TurboTax.
All of which is terrific for the tax-preparation industry, and perhaps April is anything but the cruelest month for those who make their living as a CPA or own stock in Intuit (which makes TurboTax). For the nation as a whole, however, the labyrinthine tortures of our tax system have serious social consequences.
Our tax code’s lack of clarity — and the flood of special-interest giveaways and preferences that make it so cumbersome — has turned innumerable taxpayers into cynics. Americans conclude that the whole setup is rigged, and that only a sucker doesn’t bend the rules in order to pay less or finagle a bigger refund. How many people who wouldn’t think of ripping off a local charity or business don’t hesitate to cheat on their taxes? In such an environment, it isn’t only compliance rates that suffer. Some of the civic virtue so important to a healthy society is lost as well. Jimmy Carter was right in 1976 when he called the U.S. income tax “a disgrace to the human race.” Thirty-six years later, it’s more disgraceful — and maddening — than ever.