Nothing demonstrates the frustrating complexity and inefficiency of the United States government more than filing your taxes. The tax code is 6,800 pages (and counting), and is nearly impossible for the average American to decipher on their own – costing 1.7 billion hours of valuable time and money by 130 million filers. In an ideal world, the U.S. would look to other first world nations that have taken steps to simplify the tax filing process – but the divisive political environment on Capitol Hill and a high-stakes presidential election this year, makes this too difficult a policy lift for Congress. So again, taxpayers are left footing the burden and the bill.
However, hope is not lost. While we wait for lawmakers to get their act together, we can capitalize on the options available now to simplify the process. Direct File – which is currently in the pilot phase – allows taxpayers to file their federal tax returns directly through the Internal Revenue Service (IRS) for free, negating the need to pay a commercial tax preparer or spend hours figuring out complicated tax forms.
The IRS estimates that it took taxpayers an average of 13 hours of combined recordkeeping, planning, completion, and submission of their tax returns in 2023. Taxpayers paid an average of $270 to a tax preparation agency, a 28.6% increase over the cost just three years earlier, and an 18.2% increase in time devoted to aggravation.
A National Bureau of Economic Research study estimates taxpayers who earned between $10,000 and $15,000 during the 2010 tax year spent 10.3 hours doing their tax returns, while the time and costs invested by taxpayers who earned $100,000 to $200,000 was just 41% (14.5 hours) and 188% ($328), respectively, greater than their lower-paid fellow citizens paid. Tax complexity that forces people to spend money on tax preparation is regressive.
Calls for a simplified filing process have spanned almost half a century and four different Presidential Administrations. President Ronald Regan was the first to float the idea of a free, paperless system with the IRS, Presidents Bill Clinton, George W. Bush, and Barack Obama following suit by offering similar proposals. Unfortunately, none made it past the drawing board.
Now, absent congressional action, there is a renewed effort through the Inflation Reduction Act (IRA) to provide relief to taxpayers that would lift the financial and administrative burden they continue to shoulder during tax season. Let’s face it, filing your taxes can be an intimidating and confusing process, and the consequences of making a mistake can be financially devastating. On the flip side, many Americans are missing out on critical tax credits that could return more money to their pockets.
Hoping to avoid mistakes and ensure eligible tax credits are claimed, individuals turn to professional tax preparers. Those paying their hard-earned money should be aware that despite flooding the airwaves with ads promising to ease the tax filing burden, the commercial tax preparation industry has historically opposed any tax simplification efforts floated by the government and it’s helping their bottom line.
Intuit Inc. has seen its revenues more than triple to $14.4 billion, and its profitability nearly tripled as well. Although part of this stellar performance may stem from recent acquisitions, the company also benefits from a $44 million investment in lobbying in the last two decades, largely to preserve tax-code ambiguity. Of course, Intuit was not alone in this effort: H&R Block Inc. has spent $9.6 million on D.C. lobbying since 2006.
Yet policymakers would do well to turn a deaf ear as legitimate tax simplification would afford them a cost-free handout to nearly every constituent who files a tax return and takes the standard deduction, which constitutes nearly 90 percent of all households. Politicians can also deliver simplification without cutting federal tax revenue, thus maintaining the perceived political gains from federal spending—all without lifting a finger.
Taxpayers need a break from the demands of filing their taxes, particularly for those least able to afford commercial tax preparers’ products and services. The rewards to society and the economy that will come from allowing citizens to pay their taxes through a quick and simple system are enormous and will give Congress time to fix a long-overdue problem.
