Politicians regularly lament the sorry state of our tax code. Last year on tax day, President Obama pledged “we'll make it easier, quicker and less expensive for you to file a return, so that April 15th is not a date that is approached with dread every year." http://online.wsj.com/article/SB123980697575621155.html President George W. Bush made similar promises. http://www.washingtonpost.com/wp-dyn/articles/A57466-2004Sep2.html Yet instead of solving the problem, our tax code is only getting more complex. The average compliance time for an individual taxpayer has climbed from 25.4 hours five years ago, to 26.4 hours as of last year. That's an extra hour of our lives lost to filing out taxes thanks to policymakers continuing each year to make the process even more confusing and complex.
Of course, the individual tax code creates the most obvious burden for individual taxpayers. Yet the equally complex corporate tax system also levies real costs on average American citizens. Last year, the National Taxpayers Union estimated that compliance costs alone would take $159.4 billion from American corporations. That's around half of what those companies had to pay in taxes, a startling statistic, attesting to the corporate tax code's incredible inefficiency. Think about it: for every dollar the government raises in revenue from corporations, companies have to pay out more than $1.50. Surely policymakers can do better.
Often, people shrug off the importance of corporate tax reform. Corporations have lots of money, the thinking goes. Better for them to bare a larger share of the tax burden to spare average families. Yet in reality it's everyday consumers who end up paying corporate taxes. The money corporations send to the government (and that they pay to lawyers and tax preparers to make sure that they all complying) has to come from somewhere. Companies pass on those costs to consumers by charging higher prices on products and services. Workers receive lower wages and have fewer job opportunities. As a company becomes less profitable, it becomes a less valuable investment, leaving shareholders worse off. As we learned all too well during the recent financial crisis, it isn't just the rich who are hurt when stock values go down: everyone who has a 401k or other retirement account, including public pension systems, is affected.
With the federal government facing trillion dollar annual deficits, Congress is unlikely to pursue tax cuts anytime soon. Yet surely they can explore ways to simplify the tax code to reduce the dead weight loss – that's the economic term for all the time and money wasted on compliance – even while keeping the tax code revenue neutral.
Americans shouldn't have to pay nearly a third of their income in taxes. That's just too much. And certainly we shouldn't also lose a day of our lives in process of turning over so much of our money. It's time for tax reform so that the American people can get back to enjoying the spring.