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Many Mistakes For Self-Filers Due To Complex Tax Code

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frustrated
The Tax Code Is Too Complicated

By STEPHEN OHLEMACHER  The Associated Press

Too intimidated to fill out your tax return without help? Join the club. 

At nearly 4 million words, the U.S. tax law is so thick and complicated that businesses and individuals spend more than 6 billion hours a year complying with filing requirements, according to a report Wednesday by an independent government watchdog.

That’s the equivalent of 3 million people working full-time, year-round.

“If tax compliance were an industry, it would be one of the largest in the United States,” says the report by Nina E. Olson, the National Taxpayer Advocate.

The days of most taxpayers sitting down with a pencil and a calculator to figure out their taxes are long gone, Olson said. Since 2001, Congress has made almost 5,000 changes to U.S. tax law. That’s an average of more than one a day.

As a result, almost 60 percent of filers will pay someone to prepare their tax returns this spring. An additional 30 percent will use commercial software. Without the help, Olson says, most taxpayers would be lost.

“On the one hand, taxpayers who honestly seek to comply with the law often make inadvertent errors, causing them to either overpay their tax or become subject to IRS enforcement action for mistaken underpayments,” Olson said. “On the other hand, sophisticated taxpayers often find loopholes that enable
them to reduce or eliminate their tax liabilities.”

Olson ranks complexity as the most serious tax problem facing taxpayers and the Internal Revenue Service in her annual report to Congress. She urges lawmakers to overhaul the nation’s tax laws, making them simpler, clearer and easier to comply with.

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 a task.

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 in the nation’s tax laws.

Undaunted, the top tax writer in the House says he is determined to pass reform legislation this year.

“This report confirms that the code is 10 times the size of the Bible with none of the good news,” said Rep. Dave Camp, chairman of the House and Ways and Means Committee “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.”

“Comprehensive tax reform will make sure everyone is playing by the same rules and help businesses create more jobs and invest in their workers,” Camp said.

The general formula for tax reform is widely embraced on Capitol Hill: Eliminate or reduce some tax credits, exemptions and deductions and use the additional revenue to pay for lower income tax rates for everyone. There is, however, no consensus on which tax breaks to scale back.

That’s because Americans like their credits, deductions and exemptions –the provisions that make the tax law so complicated in the first place. Would workers want to pay taxes on employer-provided health benefits or on contributions to their retirement plans? How would homeowners feel about losing the mortgage interest deduction?

Those are the three biggest tax breaks in the tax code, according to congressional estimates. Together, they are projected to save taxpayers nearly $450 billion this year.

In all, taxpayers will save about $1.1 trillion this year by taking advantage of tax breaks, according to the Joint Committee on Taxation , the official
scorekeeper for Congress. That’s almost as much as individuals will pay in income taxes.

To avoid angering millions of constituents who rely on popular tax breaks, politicians prefer to endorse tax reform without getting into specifics. Instead, they say they want to reform the tax code by eliminating special interest “loopholes” that help only small but well-connected groups of taxpayers.

Obama has repeatedly said he wants to eliminate tax breaks for hedge fund managers and companies that buy corporate jets. Throughout the recent fiscal cliff debate, House Speaker John Boehner said he favored raising additional tax revenue by reducing unspecified tax loopholes rather than raising income tax rates.

Olson defines “loopholes” as tax breaks that benefit someone else. She warns that targeting only narrow provisions won’t raise enough revenue to significantly lower rates or make the law much simpler.

“That’s what we’ve been trying to say to taxpayers, that the special interests are us. It’s not just oil and gas or whatever you want to point your finger at,” Olson said. “That’s not where the money is.”

By STEPHEN OHLEMACHER  The Associated Press

 Source: Newsday