June 2008

I owe, I owe, so off to work I go……

By Deborah Thornton

I owe, I owe, so off to work I go; and then I have to prepare my taxes!

Not only are many Americans struggling with personal debt and financial issues, but they have to deal with submitting their taxes. The National Taxpayers Union (NTU) recently issued a policy paper outlining the time and difficulty in preparing tax returns.  Their data comes directly from the Internal Revenue Service (IRS).

As reported by NTU, the IRS figures show that in 2006 the average individual taxpayer spent 26.5 hours preparing taxes, including recordkeeping, studying the law, and preparing and sending the forms. Nationwide the total time spent was 3.55 billion hours, with 138.4 million individual returns submitted.  At an average pay rate of just over $26.00 per hour, the total cost was $92.6 billion.[1]  In addition, the money we spent on computer software, postage, or a tax preparer was over $27.0 billion, or an average of $268.00 per return, according to the IRS.  While just two years ago the figure was only $242. [2]

A large part of this cost is due to the growing use of professional tax preparers. Since 1980 the use of paid preparers has grown 65 percent, and since 1990, 31 percent.  It’s no wonder because since 1975 the number of pages in the instruction booklet has grown from 39 to 155.[3]  This number has tripled just since taxes were “simplified” in 1985.[4]  In the good old days, 1934, the instructions were only two pages long.  For the entrepreneurs among us this is not all bad.  For example, it allowed H&R Block, the “world’s preeminent tax services provider,” to gross $4 billion in fiscal year 2007.[5]  They now have approximately 13,000 offices, in virtually every city in the United States.

Though most people cuss the IRS when spending this time and money doing their taxes, the people to blame are not the hardworking government bureaucrats dealing with all this paper, but Congress. For example, the Congressional Joint Committee on Taxation (JCT) publishes a “General Explanation of Tax Legislation Enacted.”  The purpose of this document is to outline, in plain English, the legislation just passed.  The 2007 report was itself 841 pages long, up from 600 pages the previous year.[6]  Congress seems to find it impossible to say in one sentence what it can say in 20.  Though most Congressmen blame “the other guy” for this situation, the numbers tell a very specific story.

In addition to their study of the tax burden, the NTU reviews hundreds of tax-related votes in Congress each year and issues individual rankings of “taxpayer friendliness.”[7]  Based on a total of 427 House and 182 Senate roll-call votes a percentage grade is generated for each Representative.  For 2007 the average House score was 35 percent, the Senate 37 percent, very similar numbers.[8]  However, when broken out by political party some striking differences are revealed.  The average “taxpayer friendliness” score of Republicans is 66 percent for the Senate, 69 percent for the House.  That of the Democrats is a shameful 8 percent in the Senate and 6 percent in the House.[9]

In Iowa, the numbers are just as stark:

House of Representatives: 

Boswell District 3 Democrat 6%
Braley District 1 Democrat 5%
King District 5 Republican 85%
Latham District 4 Republican 51%
Loebsack District 2 Democrat 4%

 

U.S. Senate: 

Grassley Republican 52%
Harkin Democrat 5%

Data Source: National Taxpayers Union Rates Congress, 110th Congress, 1st Session 2007, March/April 2008, p. 2 and 4.

The direct impact their actions have on individual Iowans is significant. For example, in 2005 almost 1,350,000 Iowans filed federal income tax returns.  Of these, 924,500 had a paid preparer’s signature.  At the time and rate of 26.5 hours at $26 per hour the cost to us, the taxpayers, was $930 million.  Almost one billion dollars in time and effort just to file our returns!  The paid cost of $268 per return for the 924,500 prepared by professionals totals almost another $250 million.  As the vast majority of returns revealed an adjusted gross income of less than $50,000 (almost 923,000) these costs have significant financial impact.

Fortunately respondents in current public opinion surveys recognize Congressional responsibility for not only taxes but many other issues, and their approval rating has dropped to a near all-time low of 21 percent.[10]  It remains to be seen if this low approval rating translates into voter action.

One of the most innovative solutions to the tax code problem is the “Fair Tax,” a “comprehensive proposal that replaces all federal income and payroll based taxes” with a progressive national retail sales tax.[11]  In effect it taxes workers only on what they spend, be it for cars, houses, or clothes.  One of its chief benefits is the removal of the paperwork burdens outlined above.  Another is that it brings transparency and accountability to tax policy.

In Iowa, the Fair Tax was a major topic of debate during the Presidential Caucuses.  Only one Congressman, Representative Steve King, Republican from the 5th District is supporting the Fair Tax as a co-sponsor, while Representatives Leonard Boswell (D-3) and Tom Latham (R-4) are specifically opposed.[12]

Though critics of the Fair Tax have legitimate questions about implementation and economic impact, it will remove the vast majority of costs currently associated with April 15th. And though “I owe, I owe, so off to work I go….,” if the Fair Tax is passed and implemented it won’t be to spend almost one thousand dollars on preparing my taxes.

Deborah D. Thornton is a Research Analyst at Public Interest Institute. 

The views expressed herein are those of the author and not necessarily those of Public Interest Institute or Tax Education Foundation. They are brought to you in the interest of a better-informed citizenry.

[1] David Keating.  “A Taxing Trend: The Rise in Complexity, Forms, and Paperwork Burdens,” National Taxpayers Union Policy Paper 125, April 15, 2008, p. 1.

[2] Ibid.

[3] Ibid., p.2.

[4] Ibid., p.1.

[5] H& R Block website, <http://www.hrblock.com/press/Article.jsp?articleid=1529> May 5, 2008.

[6] Keating, p. 5.

[7] National Taxpayers Union Rates Congress, 110th Congress, 1st Session 2007, March/April 2008, p.1.

[8] Ibid.

[9] Ibid.

[10] Public Shows Little Love for Bush, Congress, <http://www.gallup.com/poll/104989/public-shows-little-love-bush-congress.aspx> May 6, 2008.

[11] About the Fair Tax, <http://www.fairtax.org/site/PageServer?pagename=about_main> May 5, 2008.

[12] Ibid.