January 13, 2009

ARGUING FOR TAX REFORM:

“The largest source of compliance burdens for taxpayers, and the IRS, is the overwhelming complexity of the tax code,” Olson writes. “The only meaningful way to reduce these burdens is to simplify the tax code enormously.”

It’s common sense and worth a read, but a few figures stand out:

* Americans spend 7.6 billion hours annually trying to figure out their federal taxes. Working eight-hour days, five days a week, 50 weeks a year, that’s the equivalent of 3.8 million full-time workers.
* At the average hourly wage of $27.54, that tax-preparation time amounts to $193 billion, or 14 percent of aggregate income tax receipts.
* A staggering 60 percent of individual taxpayers are so bewildered by the tax code that they hire outside preparers. An additional 22 percent buy computer software.

The bottom line: Paring the tax code’s 3.7 million words to something comprehensible would effectively return money to the taxpayer at no “cost” to the government. Individual taxpayers could do something else with their time, the small-business owner could concentrate on creating income, and the IRS (and, consequently, the taxpayer again) could spend less money on compliance and enforcement. Heck, taken all together, tax receipts from a simplified tax system might actually rise.

But if Obama and Congress still aren’t convinced after reading Olson’s report, they should consider the sorry case of one of their own: Even Rep. Charlie Rangel, chairman of the nation’s top tax-writing committee, can’t understand the basics of the tax code.

Well, I’m convinced.

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