Apr 8th 2010 | WASHINGTON, DC | From The Economist print edition
IT IS that time of year again, when the cherry trees are blooming and Americans are stuck indoors wrestling with their taxes. Forget, for a moment, whether marginal rates are too high or too low. The most serious problem facing taxpayers is complexity, says Nina Olson, who is the national taxpayer advocate—the head of a watchdog service created by Congress in 1996 and ignored ever since.
The federal tax code, which was 400 pages long in 1913, has swollen to about 70,000. Americans now spend 7.6 billion hours a year grappling with an incomprehensible tangle of deductions, loopholes and arcane reporting requirements. That is the equivalent of 3.8m skilled workers toiling full-time, year-round, just to handle the paperwork. By this measure, the tax-compliance industry is six times larger than car-making.
Every year, the national taxpayer advocate issues a report begging Congress to simplify the system. In her most recent one, published on December 31st, Ms Olson frets that she is repeating herself. She refers Congress to what she said the previous year. An incredible 82% of taxpayers are so flummoxed that they pay for help. Some 60% hire an accountant or tax preparer, while another 22% use tax software. She might have added that even the head of the Internal Revenue Service, Douglas Shulman, gets someone else to do his taxes.
President Barack Obama says he wants to simplify the tax code. But he has just added a ton of health-care-related provisions to the system. And even if he were zealous about simplification, he would find it hard.
Every wrinkle in the tax code represents a favour to some group. It could be a small group, such as loggers, or a huge one, such as homeowners. Politicians use the tax code to encourage things they like, such as driving hybrid cars, and to discourage things they don’t like, such as work. A typical loophole has passionate defenders but no opponents. Those who benefit from it, benefit a lot. Those who would gain from its repeal (ie, taxpayers in general), have never heard of it. So the mess gets ever messier. Happy April 15th.