A futile plea for tax code simplicity

Tweet about this on TwitterShare on FacebookShare on Google+Share on LinkedIn

The Economist discusses a futile plea for tax simplicity. (The article is behind paywall). Here are a few interesting points from the article.

“The federal tax code, which was 400 pages long in 1913, has swollen to about 70,000. Americans now spend 7.6 billion hours a year grappling with an incomprehensible tangle of deductions, loopholes and arcane reporting requirements. That is the equivalent of 3.8m skilled workers toiling full-time, year-round, just to handle the paperwork. By this measure, the tax-compliance industry is six times larger than car-making.

An incredible 82% of taxpayers are so flummoxed that they pay for help. Some 60% hire an accountant or tax preparer, while another 22% use tax software.”

But why is it so difficult to simplify?

“Every wrinkle in the tax code represents a favour to some group. It could be a small group, such as loggers, or a huge one, such as homeowners. Politicians use the tax code to encourage things they like, such as driving hybrid cars, and to discourage things they don’t like, such as work. A typical loophole has passionate defenders but no opponents. Those who benefit from it, benefit a lot. Those who would gain from its repeal (ie, taxpayers in general), have never heard of it. So the mess gets ever messier. Happy April 15th.”