The National Taxpayers Union Foundation (NTUF) has urged US lawmakers to address the tax compliance burden as part of comprehensive tax reform.
The NTUF said that rather than increase funding for the Internal Revenue Service to administer a highly complex code, the US tax system should be simplified across the board.
Demian Brady, Director of Research at the NTUF, said: "Ultimately, lasting and meaningful change to alleviate the difficulties faced by so many taxpayers struggling to comply with the current tax code must come from lawmakers. Under the current tax system, efforts to enhance and improve taxpayer services would require a significant expenditure of limited resources into an agency that too many people distrust, thus limiting the potential benefits. That same agency would still face the task of attempting to ensure compliance with tax laws that no one inside or outside of government can completely, confidently explain or understand. A more efficient, effective policy solution would be to enact comprehensive reform of the entire system. Otherwise the toll of tax complexity will continue to rise for our economy and our society."
The comments came alongside a new report from the NTUF, which brings together the findings of several research papers into the impact on taxpayers and the economy of the complex US tax system. It noted, for instance, that there are 199 forms related to the individual income tax, as well as 230 business tax forms, 14 related to employer's quarterly tax returns, and many others related to benefit plans, gift, and estate taxes, etc. IRS's list of forms currently consists of 1,278 available files.
Brady said: "Taxpayers are all too familiar with how much they owe in taxes each year. But perhaps less appreciated is the burden that goes above and beyond one's tax obligation: the incredible amount of time that is required each year to comply with our nation's extremely complicated tax system."
"The purpose of this paper is to examine the state of the tax code and the complexity burdens it imposes not only on taxpayers, but also on the Internal Revenue Service's ability to administer the system and provide quality service to taxpayers."
It notes that, in 2016, the IRS received 150.7 million individual tax returns, of which 149.8 million were the 1040, 1040A, or 1040EZ. For these three forms combined and then averaged across the filing population, the activity of keeping records and completing, submitting, and complying with the Internal Revenue Code's basic series of returns requires an average of 13 hours from each filer. In total, the time spent on the nearly 150 million 1040 forms filed in 2016 consumed 1.9 billion hours of productivity.
Looking more broadly, the report notes that the Taxpayer Advocate Service estimates that taxpayers spend over six billion hours complying with the tax code each year. It estimates that this tax burden is worth around USD229bn lost for taxpayers each year, based on time spent and the money spent on the services of tax experts and software.
"It has been over thirty years since taxpayers have seen the last comprehensive reform of the federal income tax: relief from our convoluted system is long overdue," Brady said.