WASHINGTON, D.C. — The nation’s tax law is so thick and complicated that businesses and individuals spend more than 6 billion hours a year complying with filing requirements. That’s the equivalent of 3 million people working full-time, year-round.
As a result, about 90 percent of filers will either pay a tax preparer or use a computer software service to help with their federal tax returns this spring, according to a report Wednesday by an independent government watchdog.
“The existing tax code makes compliance difficult, requiring taxpayers to devote excessive time to preparing and filing their returns,” says the report by Nina E. Olson, the National Taxpayer Advocate. “It obscures comprehension, leaving many taxpayers unaware how their taxes are computed and what rate of tax they pay. It facilitates tax avoidance by enabling sophisticated taxpayers to reduce their tax liabilities and provides criminals with opportunities to commit tax fraud.”
Olson said the tax code also “undermines trust in the system by creating an impression that many taxpayers are not compliant.”
She ranks complexity as the most serious tax problem facing taxpayers and the Internal Revenue Service in her annual report to Congress.
Momentum is building in Congress to overhaul the tax code for the first time since 1986. But Washington’s divided government has yet to show it can successfully tackle such an issue.
President Barack Obama and Republican leaders in Congress say they are onboard, though they have rarely seen eye to eye on tax policy. They struggled mightily just to avoid the year-end fiscal cliff, passing a bill that makes relatively small changes to the nation’s tax laws, compared to a major overhaul.
“Our broken tax code has become a nightmare of loopholes and special interest provisions that create added complexities and costs for hardworking taxpayers and small businesses,” said Rep. Dave Camp, R-Mich., chairman of the tax-writing House and Ways and Means Committee. “Comprehensive tax reform will make sure everyone is playing by the same rules, and help businesses create more jobs and invest in their workers.”