Each year we produce the State Business Tax Climate Index, which promotes tax competition between the states and motivates policymakers to reform their tax systems toward pro-growth policies. Over the past few years, the...
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Complexity is Still the Number One Issue According to the National Taxpayer Advocate's Annual Report
The 2010 Annual Report to Congress from National Taxpayer Advocate Nina Olsen highlights 25 current problems with the IRS and provides recommendations to Congress to correct them. The first two identified are the most significant and pose the most serious problems if not corrected.
The first problem identified in the report is the complexity of the Internal Revenue Code. At 3.8 million words, the tax code is over 11,000 single spaced pages and, reading at 300 words per minute, it would take a person almost 9 complete days to read the entire thing. The Taxpayer Advocate Service estimates that taxpayers spend 6.1 billion hours a year doing their taxes, which equates to over 3 million Americans working full-time — greater than the number of teachers, professors and librarians combined. This time spent on taxes translates to a cost of $163 billion, based on hourly wage rates. Not only does the long and complex tax code cost time and money, it also results in incorrect filings by taxpayers: many make honest mistakes because of the cryptic wording, while others are able to navigate loopholes to greatly reduce their taxes. An estimated 60% of individuals employ tax preparers to do their taxes for them, adding to the cost imposed on taxpayers. The Taxpayer Advocate recommends a vast reduction in tax expenditures — deductions or exemptions built into the tax code — while also lowering the overall tax rates to reduce the burden on most Americans.
The second serious problem with the IRS is its movement from a collection agency to an agency that also distributes benefits. With the passing of Health Care Reform, the IRS has been tasked with distributing benefits for multiple provisions in the legislation. The current mission statement and organizational structure of the IRS do not allow for adequate administration of those health care provisions. The National Taxpayer Advocate recommends the restructuring of the IRS to create an office dedicated to the distribution of benefits. She also recommends revising the mission statement of the IRS to include its role as a distributor of benefits and highlight its need for additional funding for those actions.
The National Taxpayer Advocate's report provides a detailed and thorough critique of the current state of the IRS and following her advice would not only benefit the IRS, but would also benefit the American people as a whole.
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