WASHINGTON – Tax season became a little more taxing this year, with the average person spending more than a day and more than $200 collecting, calculating and compiling those numbers for the tax man, according to a report based on Internal Revenue Service figures.
If it’s any consolation to the individual still trying to get receipts in order a day before Tuesday’s filing deadline, businesses have it far worse. The National Taxpayers Union, in its annual look at the burdens of taxpaying, said the corporate cost of compliance is about $170 billion. General Electric in 2006 filed returns equivalent to 24,000 printed pages.
Congress, and not the Internal Revenue Service, is the leading culprit in this time and money increase, said the group, a nonpartisan organization that works for lower taxes and smaller government. “Congress is adding to the tax laws’ complexity faster than the IRS can simplify its forms,” it said.
IRS figures showed that all taxpayers, from those using the simplest 1040-EZ form to those using longer forms, spent 26.5 hours in record keeping, studying the law, and preparing and sending their forms for the 2006 tax year. That was up from 25.4 hours three years earlier.
The average out-of-pocket cost, including for those taxpayers doing their own taxes, was $207, up from $185 three years earlier. The self-employed taxpayer paid an average $444 to put his taxes together.
That takes a chunk out of the refunds most taxpayers receive. IRS Commissioner Douglas Shulman told Congress last week that as of March 29 it had issued about 70 million refunds, with the average refund worth $2,467. The tax agency expects to process nearly 140 million individual returns this year.
The NTU report estimated that, using an hourly compensation rate of $26, the value of time lost compiling tax returns was $92.6 billion. More directly, individual taxpayers spend almost $28 billion on software, tax preparers, postage and other out-of-pocket costs.
The $170 billion compliance cost for corporations represented 43 percent of corporate income taxes collected in fiscal year 2007.
One reason for this annual agony is that tax law keeps getting more complex. The instruction book for Form 1040 has grown from four pages in 1945 to 117 pages in 2000 and 155 pages last year. The Congressional Joint Committee on Taxation’s general explanation of tax legislation enacted in the 2006-2007 session of Congress ran to 841 pages, up from 593 pages for the previous Congress.
Congress is marking Tax Day with several initiatives to make paying taxes simpler or fairer. On Monday the House is considering a bill to bar federal agencies from awarding contracts to people or companies that have failed to pay their federal taxes.
Later in the week, the chamber will vote on a bill that, among other provisions, eliminates a requirement for individuals to keep records of calls made on employer-provided cell phones and stops foreign contractors from using foreign subsidiaries to evade Social Security and other employment taxes. That legislation would also terminate a program under which the IRS contracts with private debt collection companies to pursue smaller scale tax evaders.
In the Senate, Sens. Charles Schumer, D-N.Y., and Daniel Akaka, D-Hawaii, are promoting a bill that would require the IRS to allow all Americans to file their returns electronically free of charge. They say this would save taxpayers some $1.2 billion a year.
But Congress also made life for the IRS more difficult this year by waiting until last December to fix the alternative minimum tax, a levy intended to affect only a small number of very wealthy people that could have hit more than 20 million this year. That slowed down the processing of some refunds while the IRS adjusted its computers.
The IRS also was forced to be as efficient as possible this year because it was tasked with paying checks owed Americans as part of the economic stimulus package passed in January. People should start receiving those payments, of up to $600 and $1,200 respectively for individuals and couples with another $300 per child, early next month.
The independent IRS Oversight Board in a recent report commended the IRS for across-the-board improvements in such areas as customer service and enforcement of tax law.
But it also noted that the estimated tax gap of $290 billion — the difference between what is legally owed and what is actually paid every year — averages out to about $2,200 per individual tax return. That, it said, is “an enormous burden for the average taxpayer and one that should not be tolerated by honest taxpayers.”