April 12, 2001

April 12, 2001 | Commentary on Taxes

Tax Day Nightmare Gets Worse

There is good news and bad news this tax season. The good news is we get an extra day to complete our returns, since April 15 falls on a Sunday. Balance that against the bad news: The tax code has become even more complex over the last 12 months. It now requires no fewer than 742 different forms and 254 separate publications.

This mountain of paperwork is more than just a nuisance. It's expensive. The ever-increasing hours we spend sorting through records, filling out forms and doing tedious computations make for heavy compliance costs-in effect, a hidden tax we pay for the boundless pleasure of sending our hard-earned dollars to Washington. The only real solution is to rip up the tax code and replace it with a simple and fair flat tax.

The latest evidence comes from a study by the General Accounting Office, the government's auditors. GAO employees tested the Internal Revenue Service by calling the toll-free customer service hotline and visiting customer service centers. In each case, GAO testers were armed with a long list of tax questions to determine whether the IRS was giving accurate information.

The results were awful. First, an astounding 37 percent of calls to the hotline went unanswered. This is hardly surprising to those who have seen previous studies of IRS performance. Still, it's rather frustrating. One would think the agency eventually would figure out that more calls come in as the filing deadline approaches. Is it really that difficult to plan for this annual event?

But maybe busy signals aren't so bad. The GAO also found that callers who did get through received incorrect answers 47 percent of the time. This is a staggering level of inaccuracy, especially considering that all the questions the GAO testers posed came straight out of IRS manuals. Confused taxpayers, it seems, might just as well flip a coin to determine how to fill out their returns.

The GAO also sent representatives into IRS customer service centers, but these face-to-face encounters generated even worse results. IRS personnel failed to provide the correct answer 49 percent of the time. (One consolation: The GAO did indicate that the people giving this bad advice generally were polite and courteous.)

In other words, the tax code is such a mess that even trained IRS personnel can't make heads or tails of it.

Highly paid private sector experts fare equally poorly. Consider the famous test that Money magazine conducted a couple of years ago. They sent a hypothetical family's tax return to 46 professional tax preparers. The result? They got back 46 different answers, and not a single one was right. Worse, most of these experts wound up calculating that the family should pay more than it really owed.

This helps explain why this year's tax debate leaves much to be desired. Republicans and Democrats are arguing about the size of the tax cut, but neither side is doing much to simplify the tax code and reduce the power of the IRS. Yes, repealing the death tax will help the millions of farmers and small business owners who bear the brunt of this complicated and unfair tax, but this is just one small step on a long journey.

There are many other wretched provisions of the tax code, from capital gains to the alternative minimum tax, that cry out for reform. Or, better yet, how about enacting a flat tax? This dramatic step would eliminate the piles of paperwork required by the current system and replace them with two postcard-sized forms.

It would also eliminate the fight over "fairness." Democrats are complaining that the Republican tax cut is unfair because people who pay the most in taxes get the biggest tax cut. A flat tax would mute this objection, since all taxpayers would be playing by the same rules. No longer could the rich and powerful take advantage of special loopholes, shelters and preferences by hiring enough lawyers, lobbyists and accountants.

Simplicity and fairness are just two reasons to adopt this reform. With the economy stuttering, lawmakers should consider the fact that a flat tax would boost economic growth and improve our international competitiveness.

All that really counts is that we get rid of the convoluted tax code we have today and replace it with a system that rewards people for being productive and honest. Not to mention one that you actually can figure out every April.

Daniel J. Mitchell is the McKenna senior fellow in political economy at The Heritage Foundation (www.heritage.org), a public policy research institute.

About the Author

Daniel J. Mitchell, Ph.D. McKenna Senior Fellow in Political Economy

Related Issues: Taxes

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