Railing against the tax code has become an American tradition. But the question remains: What are you willing to give up to get a simpler tax code?
In her 10th annual report to Congress, National Taxpayer Advocate Nina E. Olson says that over the next decade the most serious problem facing taxpayers -- and the Internal Revenue Service -- is the complexity of the Internal Revenue Code. It takes too many hours, not to mention too much money, for individuals and companies to simply pay their taxes.
Consider what Olson notes in her report:
*Individuals and businesses spend about 6.1 billion hours a year complying with the filing requirements of the tax code. And by the way, this figure does not include the millions of hours that taxpayers must appropriate in responding to IRS notices or audits.
*The amount of money allocated just to make sure individuals and corporations are in compliance with the tax code is enormous -- $163 billion, or 11 percent of aggregate income tax receipts, in 2008 alone.
*Regulations issued by the Treasury Department to give guidance to taxpayers so that they understand the tax code now stand about a foot tall.
*About 60 percent of individual taxpayers pay preparers to complete their tax returns. An additional 29 percent use tax-preparation software.
*There have been approximately 4,428 changes to the tax code over the past 10 years, an average of more than one a day, including an estimated 579 changes made last year. A day before Olson released her report to Congress, the IRS had to issue a caution that some taxpayers will have to wait until mid- to late February to file their 2010 tax returns because of tax law changes passed in December. The IRS needs the extra time to reprogram its processing systems.
Olson worries that the dense tax code has made many taxpayers feel that they are "tax chumps."
"Taxpayers who believe they are unfairly paying more than others inevitably will feel more justified in 'fudging' to right the perceived wrong," Olson writes. "And the complexity of the current system does, indeed, inflict a 'wrong,' providing a distinct advantage to taxpayers who can afford expensive tax-planning advice while, at least in relative terms, discriminating against taxpayers who do not have access to such advice."
Here's the thing. If we all agree that tax reform is long overdue, why hasn't it happened?
Olson answers that question with refreshing candor.
"We are all unwilling to acknowledge the strong vested interests each of us has in the current structure," she says. "Tax complexity doesn't occur just because of 'big money' special interests. It occurs because of the tax provisions that benefit each one of us."
For example, just try having a discussion about eliminating the interest deduction for mortgages. Fighting words fly, despite the fact that many borrowers don't take the interest deduction because they don't itemize. So, in large part, the deduction benefits the more well-off among us.
Olson didn't put it this way but, borrowing from the sentiments in the late Michael Jackson's wonderful song "The Man in the Mirror," reform starts with you.
If we are the special interests and we want change, we need to look in the mirror.
"The road to true tax reform requires each and every one to be willing to stop protecting our own tax breaks long enough to begin a dialogue about what we want our system to look like, so we remain a vibrant nation with a tax system that is transparent to its taxpayers -- one that is simpler to understand and to comply with," Olson writes.
Can I get an amen?
But I probably won't. Neither will Olson. Still, it's time to work on a significant overhaul of our tax code.
To help get the dialogue started, the taxpayer advocate service has set up an online tax reform suggestion box at www.taxpayeradvocate.irs.gov.
However, before you submit your diatribe about the tax code, Olson asks you to consider these questions: What would you be willing to give up if you knew that others are giving up their breaks and the end result would be a much simpler system -- one in which the average taxpayer might be able to prepare his or her own tax return? What particular provisions of the existing tax system are especially burdensome or seem particularly unfair?
No message could have been any clearer. If you want to make the tax world a better place, first look in the mirror. Take a look at yourself and then make a change.