The country’s top taxpayer advocate urged Congress on Wednesday to simplify the tax code, saying it is the most serious problem facing taxpayers and that individuals and businesses spend about 6.1 billion hours annually complying with tax-filing requirements.
The analysis and recommendation are included in the 2012 report to Congress by the national taxpayer advocate, the IRS' internal watchdog.
“The existing tax code makes compliance difficult, requiring taxpayers to devote excessive time to preparing and filing their returns,” tax advocate Nina Olson wrote in the 756-page report to Congress. “And it undermines trust in the system by creating an impression that many taxpayers are not compliant, thereby reducing the incentives that honest taxpayers feel to comply.”
The report follows Washington Democrats and Republicans agreeing last week to a deal that permanently extended lower tax rates for families making less than $400,000 annually but failed to address comprehensive tax reform.
The Republican-controlled House has vowed this session to attempt to overhaul the system but earlier attempts have been unsuccessful.
The report also states the tax code imposes an “unconscionable burden” on taxpayers, pointing out that Congress over roughly the past 11 years has made about 5,000 changes to the tax code, which now totals about 4 million words.
By eliminates all tax credits, Congress could cut individual income tax rates by 44 percent and still generate the same amount of revenue it collects under current rules, the report states.
An analysis of IRS data by the Taxpayer Advocate Service shows the 6.1 million hours that individuals and businesses spent with tax-filing requirements is the equivalent of more than 3 million full-time workers.
“If tax compliance were an industry, it would be one of the largest in the United States,” the report states.
Olsen also said the IRS is under-funded, which hurts taxpayers in part because the agency cannot do enough to help victims of tax-related identity theft and fraudulent tax-form preparation.
“Each dollar appropriated for the IRS generates substantially more than one dollar in additional revenue,” she stated. “It is therefore ironic and counterproductive that concerns about the deficit are leading to cuts in the IRS budget, when those cuts are making the deficit larger.
“The plain truth is that the IRS’s mission trumps all other agencies’ missions, because without an effective revenue collector, you can’t fund those other agencies.”