April 2013

We Need a Less Complex Federal Tax Code

by Amy K. Frantz

The U.S. Income tax was passed by Congress and signed into law by President Woodrow Wilson in 1913. “When Congress passed the income-tax law in 1913, a couple making over $4,000 in taxable income after all deductions was subject to a 1% tax rate.  With inflation that $4,000 then is equal to about $93,700 now.  But the tax rate now is 25% or more for those in the $100,000-plus salary range.”[1]  In addition to collecting more revenue on more income-tax filers, the federal income tax has become vastly more complex since 1913.

[W]hat began in 1913 as a 400-page legal information service stands today as a [73,954] page, 25-volume service called CCH Standard Federal Tax Reporter, containing the federal tax law and related materials. A graph showing the history of how the Standard Federal Tax Reporter has grown in size can be viewed here at: www.cch.com/TaxLawPileUp.pdf.[2]

The mission statement of the Taxpayer Advocate Service (TAS) states, “As an independent organization within the IRS, we help taxpayers resolve problems with the IRS and recommend changes that will prevent the problems.”[3]  Nina E. Olson, the National Taxpayer Advocate provides an annual report to Congress, and in her 2012 report, had the following to say about tax complexity:

An analysis of IRS data by the Office of the Taxpayer Advocate shows it takes U.S. taxpayers (both individuals and businesses) more than 6.1 billion hours to complete filings required by a tax code that contains almost four million words and that, on average, has more than one new provision added to it daily. Indeed, few taxpayers complete their returns without assistance.  Nearly 60 percent of taxpayers hire paid preparers and another 30 percent rely on commercial software to prepare their returns.[4]

As Scott Hodge of Tax Foundation discussed on a recent Fox Business report on tax complexity, those six billion hours that are spent to comply with the tax code and file federal income tax returns equals the equivalent of three million individuals working full time for one year doing nothing but tax returns.[5]  In other words, it would take every single person in Iowa, which has a population of just over three million, working full time all year to file the federal tax returns for everyone in the United States.[6]

Much of this complexity has come from elected officials using the tax code to promote policies or encourage certain behaviors. As Scott Hodge writes:

Our current tax system is a Byzantine monstrosity that spans 70,000 pages, costs taxpayers more than $160 billion per year to comply with, and is undermining our nation’s economic potential….Contributing to this complexity are the more than 170 different tax expenditure programs in the tax code, which have a total budgetary cost exceeding $1 trillion. These myriad tax provisions were enacted to achieve all manner of social and economic objectives, such as encouraging people to buy hybrid vehicles, turn corn into gasoline, buy a home, replace the home’s windows, adopt children, put them in daycare, then help them go to college, and the list goes on.[7]

National Taxpayer Advocate Olson urges Congress to consider the following to alleviate what she calls the “most serious problem” of the tax code, its complexity:

To inspire confidence and trust, the tax laws should be comprehensible and the computations of tax should be transparent and relatively simple, yet few taxpayers today can confidently say they understand the tax code or even that they have correctly computed their tax liabilities.[8]

Congress and the President need to stop using the tax code to promote public policy and start working together to make the tax code less complex and easier to comply with for Iowa’s and America’s taxpayers.

Amy K. Frantz is Research Vice-President 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] Al Neuharth, “How income tax has changed in 100 years,” USA Today, January 31, 2013,

<http://www.usatoday.com/story/opinion/2013/01/31/income-tax-code/1881545/> accessed on March 20, 2013.

[2] Leslie Bonacum & Eric Scott, “When It Comes to Tax Law, It’s Complicated,” 2012 CCH Whole Ball of Tax, January 2012, <http://www.cch.com/WBOT2012/020TaxCode.asp> accessed on March 22, 2013.

[3] Taxpayer Advocate Service, “Who We Are,” 2013, <http://www.taxpayeradvocate.irs.gov/About-TAS/Who-We-Are> accessed on March 22, 2013.

[4] National Taxpayer Advocate, “2012 Annual Report to Congress, Executive Summary: Preface & Highlights,” December 31, 2012, p. vii, <http://www.taxpayeradvocate.irs.gov/userfiles/file/2012-Annual-Report-to-Congress-Executive-Summary.pdf> accessed on January 11, 2013.

[5] Scott Hodge on Tax Complexity, Fox Business, March 18, 2013, <http://taxfoundation.org/video/scott-hodge-tax-complexity> accessed on March 21, 2013.

[6] Population, 2012 estimate, Iowa, People QuickFacts, U.S. Department of Commerce, <http://quickfacts.census.gov/qfd/states/19000.html> accessed on March 22, 2013.

[7] Written Testimony of Scott A. Hodge, President, Tax Foundation, Hearing on Tax Reform and Tax Provisions Affecting State and Local Governments Before the U.S. House of Representatives Committee on Ways and Means, March 19, 2013, <http://taxfoundation.org/sites/taxfoundation.org/files/docs/Hodge%20Testimony%20House%20Ways%20%26%20Means%20March%2019%202013.pdf> accessed on March 22, 2013.

[8] National Taxpayer Advocate.