Tax Talk: Time to Simplify

Congressional Tax Reform Efforts Aim to Streamline the U.S. Tax Code & Create a System Anchored by Simplicity and Fairness

With congressional tax reform efforts moving forward, lawmakers and administration officials agree: it’s time to simplify the overly complex and burdensome U.S. Tax Code.

Indeed, today the tax code is comprised of roughly four million words. That is nearly seven times the length of Leo Tolstoy’s War and Peace or more than two times the length of the King James Bible plus the entire works of Shakespeare combined.

To put it another way, in 1913 the 1040 Income Tax Form consisted of three pages, with one page of instructions. In 2016, that same form consisted of two pages with 106 pages of basic instruction and, depending on taxpayer circumstances, 13 separate schedules, each with numerous (more than 70,000) pages of instructions.

So, it should come as no surprise that every tax season, regardless of an individual’s financial means, Americans are forced to untangle a web of red tape when they file their returns:

Low-income taxpayers, in order to fully reap the benefits of refundable tax credits, must navigate a minefield of complex definitions and tests; some who are eligible may not avail themselves of the credits because of complexity.
Middle-class families, especially dual income families with children, must combat the panoply of phase-ins and phase-outs and often run the risk of falling into the ever-widening reach of the Alternative Minimum Tax (AMT).
There are numerous definitions of a “child” in the tax code, and a family with children may qualify for some child benefits but not others; such complexity may discourage families from seeking tax benefits altogether, even if they are eligible to receive them.
Even middle and high-income earners are forced to endure various levels of complexities within the code and often employ tax professionals to deal with its challenges.

And to be sure, the work needed to complete the chore of filing tax returns comes at a hefty price in the form of time, resources, and money.

Here’s a look, by the numbers, according to the nonpartisan National Taxpayers Union:

6+ billion hours: The total annual time burden of tax compliance.
$262.6 billion: The total economic value compliance cost this year, which is more than the gross domestic product (GDP) of 154 countries, including Chile and Finland.
$33.67 billion: The combined costs that incur in a year on tax software and other out-of-pocket expenses.

Bottom Line: Congress is laser focused on advancing a comprehensive tax overhaul that will create a system anchored by simplicity and fairness. A simpler tax code means that many of the resources currently poured into complying with the tax laws could be put to other uses – investing in new businesses, paying for a child’s education, spending time with family, or giving money to charitable causes – and that’s just to name a few.

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