It's Tax Day: Do You Know How Complex the Code Is?

Posted: Apr 17, 2012 6:44 AM
Happy tax day, everyone! Make sure you have your ducks in a row: no one likes the IRS auditor to come sniffing around because you tried to write off free beer as a business expense. On tax day, it's important to keep a few things in mind.

The tax code is almost four million words long. If you combined the complete works of William Shakespeare and the entire Harry Potter series, you'd need more than a million more words to get to the totality of the tax code.

There have been 4,428 changes to the tax code in the last ten years. That's more than one change to the code every single day for the last ten years - including the days that Congress isn't in session. (Hat tip: Tax Foundation). The tax code has also grown immensely in the last ten years - doubling in size from 1.4 million to 3.8 million words.

A growing number of Americans use either tax preparation software like TurboTax or some other form of professional tax preparation like H&R Block. While they're often useful and easy, remember that in the political arena, these companies are enemies of tax reform. If there was a flat, easy-to-understand tax code, we wouldn't need licensed professionals to decipher the tax code and do our taxes for us, would we? As Walter Frick writes,

[A]s companies get larger, they seek to preserve themselves by any method necessary, and their interests don’t necessarily align with the greater good.

Yet another is that while more often it’s government holding back private innovation, the reverse can happen, too. In the case of TurboTax, a private company is preserving its business model at the expense of government innovation.

Individual taxpayers spent around $250 out of their pockets to prepare their taxes last year, and that's not taking into the amount of time that both Americans and businesses spent on tax preparation: a shocking 6.1 billion hours. Imagine if that time was put to more productive use!

With the incredible, unyielding complexity of the American tax code in mind, let's reflect on the Buffett Rule. President Obama wants to take a tax code that's been growing by leaps and bounds in complexity, costing Americans and businesses billions of hours every year, and make it more complex. This is insanity.

Every year we can look back at that famous statistic: in the most recent tax year, 143 million tax returns were filed. Of those, 58 million paid no income taxes at all.

The total U.S. tax burden is one-third of national GDP. While much of the wrangling over the long-term budget focuses on federal revenues - which have historically comprised around 18% of GDP - it's important to keep state revenues in mind. Filing taxes probably keeps this fresh in one's mind - state taxes are often trickier to figure out than federal returns, and obviously vary on a state-by-state basis. But the U.S. tax code in totality is more of a burden than the national conversation typically portrays.

Tax code simplicity should be one of the easiest issues to agree on on a bipartisan basis. President Obama doesn't seem to agree. While even revenue-neutral tax reform and simplicity would be a great boon to Americans, President Obama wants to fight complexity with more complexity.