Tax Law's Complexity Continues to Snare Filers, Study Finds

(Alexandria, VA) – The President's panel on federal tax reform will need to make a long list of recommendations for simplifying the nation's tax laws, according to an annual study of tax complexity conducted by the non-partisan National Taxpayers Union (NTU).

"Massive paperwork burdens and heavy reliance on outside assistance are just two signs that Americans are straining under a tax system whose weight is becoming too difficult to bear," said NTU Senior Counselor and study author David Keating. "To many Americans, tax-filing season feels more like open season on their time as well as their money."

The NTU study is the seventh major examination of Tax Code complexity the group has conducted since 1999, and thus provides a unique evaluation of how the income tax system has confronted citizens with new challenges year after year. Among the findings:

  • For the first time NTU has ever recorded, more than 9 out of 10 filers this year appear to be using a paid preparer and/or a computer for assistance in filing their tax returns. As of March 18, 61.0% of returns received by the IRS had a paid-preparer signature; combined with computer-prepared returns, the total figure is 90.5% for the current filing season.
  • The overall number of paperwork burden hours generated by the tax laws actually declined in 2002-2003, most likely due to the fact that fewer people were filing tax returns. However, the figure has headed upward again in 2004-2005, toward 6.6 billion hours per year.
  • Between 1995 and 2005, the average inflation-adjusted fee charged to H&R Block clients has nearly doubled, to $145.08.
  • For the sixth year in a row, the average American has had to spend more than 24 hours to prepare the 1040 "long" form with the three common Schedules A, B, and D. This year's figure of 26 hours, 48 minutes represents an increase of 26% since 1995. The 1040A, or "short" form, along with the common Schedule 1, takes nearly as long to prepare (11 hours, 21 minutes) as the "long" form did just nine years ago.
  • Today, taxpayers must wade through 128 pages of instructions for the standard 1040 form, which is more than triple the number in 1975 and more than double the number in 1985, the year before taxes were "simplified." These estimates are probably too low since they ignore the countless hours spent on tax minimization strategies.

Keating said that complexity is "likely to get worse before it gets better," because of the increased number of citizens who will be trapped by the Alternative Minimum Tax (AMT), a parallel tax system once aimed at ensuring the wealthy paid a substantial tax bill. By 2010, nearly 35 million taxpayers could be forced to fill out a second tax return for (and pay) the AMT. The basic AMT form is 55 lines long, with an estimated completion time of 3 hours, 53 minutes.

"Unless the tax laws are made simpler and more transparent, America risks losing its competitive economic standing in the world," Keating concluded. "Our nation's economy, civil society, and political environment would all flourish under fundamental tax reform."

NTU is a non-profit, non-partisan citizen organization founded in 1969 to work for lower taxes and smaller government at all levels. Note: NTU Policy Paper 116, A Taxing Trend: The Rise in Complexity, Forms, and Paperwork Burdens, is available online and in PDF format