An Unanswered Call
National Taxpayer advocate Nina E Olsen recently released her 2012 annual report to Congress, identifying tax reform as the overriding priority in tax administration. While her findings are certainly not surprising, they do highlight the need for comprehensive tax reform. Below are some of the highlights (lowlights):
• “The existing tax code makes compliance difficult, requiring taxpayers to devote excessive time to preparing and filing their returns. It obscures comprehension, leaving many taxpayers unaware how their taxes are computed and what rate of tax they pay; it facilitates tax avoidance by enabling sophisticated taxpayers to reduce their liabilities and it provides criminals with opportunities to create tax fraud.”
• Since 2001, Congress has made nearly 5,000 changes to the tax code, an average of more than one per day, and the number of words in the code has reached four million.
• An analysis by the Taxpayer Advocate Service shows that individuals and businesses spend about 6.1 billion hours per year with tax filing requirements.
• Individual taxpayers rarely complete their own returns. Nearly 60 percent of tax payers hire paid preparers and 30 percent rely on commercial software.
The report encourages the Congress to greatly simplify the tax code. The report urges Congress to reassess the need for existing income exclusions, exemptions, deductions and credits. For fiscal year 2013, the Joint Committee on Taxation has projected tax expenditures to be about $1.09 trillion while individual tax revenue is projected to be about 1.36 trillion. The report goes on to state that if Congress were to eliminate all tax expenditures it could cut tax rates by 44 percent and still generate the same amount of revenue.
Ms. Olsen’s report goes on to argue that the cuts to the IRS budget over the last several years have hampered tax collection efforts and greatly reduced the agencies ability to provide adequate customer service. Since 2004, the IRS’s performance in handling telephone calls and correspondence has been declining. In 2004, the IRS answered 87 percent of all calls seeking assistance and the average wait time was just 2.5 minutes. In 2012, the IRS answered just 68 percent of its calls and those who got through waited on average 17 minutes. Of the 10 million letters received in response to a tax adjustment, the IRS had only processed 48 percent of the correspondence within established timeframes.
Olsen stated “When taxpayers are attempting to comply with laws that require them to turn over a significant portion of their incomes to pay our nation’s bills, they have a right to expect that their government will do a better job taking their calls and answering their letters.”