Strategic CIO // Executive Insights & Innovation
Commentary
4/10/2009
11:47 AM
Bob Evans
Bob Evans
Commentary
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Tax Time: Spending $200B To Comply With IRS Lunacy

The IRS itself says that in 2009 American taxpayers - individuals and corporate - will spend about 880,000 man-years complying with a tax code that has exploded to 3.7 million words. The agency calculates 2006 compliance cost American citizens and companies $193 billion, meaning that this year our challenged economy will burn through at least $200 billion to march to the mad music of the IRS.

The IRS itself says that in 2009 American taxpayers - individuals and corporate - will spend about 880,000 man-years complying with a tax code that has exploded to 3.7 million words. The agency calculates 2006 compliance cost American citizens and companies $193 billion, meaning that this year our challenged economy will burn through at least $200 billion to march to the mad music of the IRS.An article in this morning's Wall Street Journal by IRS "national taxpayer advocate" Nina E. Olson says, "Every year taxpayers and elected officials complain about the tax law's complexity. But despite the exasperation, no significant simplification has occurred since the landmark Tax Reform Act of 1986. To the contrary, each new tax proposal is layered onto the existing code, rendering it more complex with every new act."

Olson then goes on to offer some reasons for the growing frustration among taxpayers who on this issue are at the mercy of their elected representatives. Among the dooziest:

  • Individuals and businesses spend 7.6 billion hours every year trying to comply with IRS requirements, which equates to almost a million man-years.
  • The equivalent full-time labor force to meet those requirements would be 3.8 million people.
  • Penalty provisions: in 1954, there were 14. Today, there are 130.
  • Change orders: the IRS loves these, and why not? Unlike people in the real world, there's no direct impact on the legislators or on the IRS regardless of how many changes they make or when they make them. Since the beginning of 2001, our tax code has been changed 3,250 times. And the pace is not slowing down: last year alone, the IRS instituted 500 changes.
  • Small businesses get hammered particularly hard, Olson says, as they "are burdened with a particularly bewildering array of laws. They face a patchwork set of rules that govern the depreciation of equipment, onerous filing requirements for employment taxes, and a vague set of factors that govern the classification of workers as either employees or independent contractors that keep businesses and the IRS battling each other for years with no obvious "correct" answer" (emphasis mine).
  • Alternative Minimum Tax: with its classically bureaucratic name that says the exact opposite of what it is, the AMT is a "nightmare," Olson says: "This hideously complex parallel tax structure effectively requires taxpayers to compute their taxes twice -- once under the regular rules, and again under the alternative structure -- and then pay the higher of the two amounts."

  • The $193 billion spent by American citizens and businesses amounted to 14% of the total aggregate tax receipts taken by the IRS.
  • Well, I guess the good news is that April 15 will be behind us soon. And the bad news is that, at this time next year, the tax code will almost certainly be bigger, fatter, more complex, more wasteful, and without a doubt more expensive. Meanwhile, perhaps we can all take comfort in knowing that Vice President Biden says it is patriotic to pay taxes.

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