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Tax Headache

Taming the Tax Beast: The Challenges and Hope for Tax Filing

By Van Leaming
Published: 02/12/2024

Every year, it’s the same frustrating story diving into tax season. Seriously, why can’t the IRS just sort it out for us? Given the rise of AI  and tools like ChatGPT, do we really need to fill out endless forms and dig through receipts, especially since many are sent directly by Banks and Employers?

The IRS already knows everything there is to know about our finances, right? Plot twist: our tax system is a maze of deductions, credits, and blind spots where the IRS may not have all the data. Beside being our civic duty and mandated by law, doing our taxes has many perks and pitfalls. 

So, what’s the deal with filing taxes? Are all these forms and the giant tax code really necessary? How much time and money are we spending on this, and what’s it costing the economy?

Do We Need to File?

Even though the IRS knows a lot about our financial lives, everyone’s situation is different. Filing taxes lets us tell our side of the story, like any extra money we made or tax breaks we should get which might not have been reported to the IRS. 

Forms Galore

Most of us can get away with a 1040EZ, but for the rest of us the IRS has over 800 forms and schedules for every tax situation under the sun. Whether you’ve got a simple paycheck or a bunch of side hustles, there’s a form for that.

Tax Code

The Internal Revenue Code (“Tax Code”) is 6871 pages long, and approximately 75,000 pages including rules, regulations, and instructions2. No wonder tax season feels like a marathon, 75,000 pages lined up end to end is equivalent to the distance of a half marathon, and tax lawyers are expected to be familiar with ALL of it, and technically ignorance of it is no excuse for us either.

Time and Money

Americans spend over 6 billion hours (equivalent to 1 year of work for 3 million people) with a cost of about $34 billion10,11 every year just to file their taxes. To put that into perspective, it is estimated to cost $20 billion to end homelessness in the United States1, or give everyone under the poverty line 4 a $5000 car that could last them 6 years. Americans spent approximately $14 billion on software alone for tax preparation.11

Internal Revenue Service (IRS) Enforcement

The IRS spends approximately $12 billion a year and employs over 79,000 people to process taxes and make sure everyone’s playing by the rules.5

The Economy Feels It, Too

The tax process takes a lot of productive capacity from the country and costs the economy a significant amount of output, around 0.8% to 1% of our National Output12 (Gross Domestic Product or GDP).

Jobs, Jobs, Jobs

The tax prep world is huge, the AICPA estimates there are over 2 million tax professionals in the US (public accounting, private industry, government).We’re talking hundreds of thousands of jobs for tax lawyers, consultants, accountants, administration, and techies making tax software.7

Is There A Better Way

A lot could be done to greatly simplify our tax code and reduce or eliminate many of the arcane sections, and in lieu of that make preparation easier. America is home to brilliant technology that brings the knowledge and history of the known universe to our fingertips with tools that mimic human intelligence, and yet here we are. Several countries including Denmark, Sweden, Estonia, and South Korea have automated pre-filled tax submission where filers only need to review and submit. The IRS just rolled out Free File9 to allow online guided tax filing. While not fully pre filled or automated, and not as comprehensive as commercial software it is a step in the right direction. While this may not be of comfort as you file your taxes now, the march of improvement is never ending and eventually we’ll figure this out.

Summary

So, yes our tax code is overly complicated, our systems are not as easy or automated as they could be, and filing taxes feels like a chore we could do without, but until we see these improvements it is our Civic Duty. Taxes are a necessary component to support the services, freedoms and protections we enjoy. As Oliver Wendell Holmes succinctly said, “Taxes are the price we pay for a civilized society.”

Citations

  1. Adler, Sami. “What Will It Take to End Homelessness in the U.S.?” Giving Compass, 13 June 2023, https://givingcompass.org/partners/homelessness/#2excludeGlossary. Accessed 4 February 2024.
  2. “How Many Pages Is the Tax Code (& How Long Does It Take to Read It).” Iris Reading, 16 January 2020, https://irisreading.com/#4excludeGlossary/. Accessed 4 February 2024.
  3. “OLRC Home.” OLRC Home, United States Code
    https://uscode.house.gov/browse/prelim@title26&edition=prelim . Accessed 7 February 2024
  4. SHRIDER, EMILY A., and JOHN CREAMER. “Poverty in the United States: 2022.” U.S. Census Bureau, 12 September 2023, https://www.census.gov/library/publications/2023/demo/#6excludeGlossary.html. Accessed 4 February 2024.
  5. Internal Revenue Service,  IRS Budgets and Statistics:
    https://www.irs.gov/statistics/#8excludeGlossary. Accessed 7 February 2024
  6. American Institute of Certified Public Accountants (AICPA): “The State of the Tax Profession: 2023 Edition”
  7. National Bureau of Economic Research (NBER): 2015 paper “The Economic Impact of the Tax Preparation Industry”
  8. National Bureau of Economic Research (NBER): ESTIMATING THE COSTS OF FILING TAX RETURNS AND THE POTENTIAL SAVINGS FROM POLICIES AIMED AT REDUCING THESE COSTS  https://www.nber.org/system/files/working_papers/w27946/w27946.pdf
  9. Internal Revenue Service, IRS Free File:
    https://www.irs.gov/filing/#12excludeGlossary
  10. National Taxpayers Union Foundation (NTU)
    https://www.ntu.org/foundation/detail/#14excludeGlossary
  11. IBIS World Market size industry analysis service
    https://www.ibisworld.com/#18excludeGlossary/#19excludeGlossary/#20excludeGlossary/
  12. Statista US GDP:
    https://www.statista.com/statistics/188105/#22excludeGlossary/
https://www.ibisworld.com/industry-statistics/market-size/tax-preparation-services-united-states/
  1. US GDP: https://www.statista.com/statistics/188105/annual-gdp-of-the-united-states-since-1990/

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