the IRS calls for tax simplification

From Nina Olson, the "national taxpayer advocate" (insert joke here) at the Internal Revenue Service, in the WSJ...

As the national taxpayer advocate, I am required to report to Congress each year on the most serious problems facing U.S. taxpayers. With April 15 fast approaching, it will come as no surprise to many frustrated taxpayers that the complexity of the tax code tops my list....no significant simplification has occurred since the landmark Tax Reform Act of 1986. To the contrary, each new tax proposal is layered onto the existing code, rendering it more complex with every new act...

- According to my office's analysis of IRS data, U.S. taxpayers and businesses spend about 7.6 billion hours a year complying with the filing requirements of the Internal Revenue Code.

- If tax compliance were an industry, it would be one of the largest in the United States. To consume 7.6 billion hours, such a "tax compliance industry" would require the equivalent of 3.8 million full-time workers.

- Compliance costs...Based on Bureau of Labor Statistics data on the hourly cost of an employee, my office estimates that the costs of complying with individual and corporate income tax requirements in 2006 amounted to $193 billion -- or a staggering 14% of aggregate income tax receipts.

- More than 80% of individual taxpayers find the process of filing tax returns so overwhelming that they pay for help. About 60% of taxpayers pay preparers to do the job, and another 22% purchase tax software to help them perform the calculations themselves.

- A 2005 study by the Tax Foundation, a tax research organization, found that the number of words in the code has more than tripled since 1975.

But most importantly, the complexity of the tax code leads to perverse results. On the one hand, taxpayers who honestly seek to comply with the law often make inadvertent errors, causing them either to overpay, or to become subject to IRS enforcement actions for mistaken underpayments. On the other hand, sophisticated taxpayers often find loopholes that enable them to reduce or eliminate their tax liabilities....

In developing a comprehensive tax reform blueprint, I recommend that emphasis be given to six core principles.

-First, the tax system should not be so complex as to create traps for the unwary.

-Second, the tax laws should be simple enough so that most taxpayers can prepare their own returns and compute their tax liabilities on a single form, and simple enough so that IRS telephone assistors can accurately answer taxpayers' questions.

-Third, the tax laws should anticipate the largest areas of noncompliance and minimize the opportunities for such noncompliance.

-Fourth, the tax laws should provide some choices, but not too many, since choices are confusing and can lead to taxpayer error.

-Fifth, where the tax laws provide for refundable credits, they should be designed in a way that is minimally burdensome both for the taxpayers claiming the credits and for the IRS in administering them.

-And last, the tax system should incorporate a periodic review of the tax code -- a sanity check to guard against complexity creep.