Smart TaxesSmart Taxes

Hate doing your taxes? Blame Congress

Lawmakers' efforts to correct economic and social problems have over the years transformed the nation's tax code into a multi-headed monstrosity.

By MSN Money producer Feb 3, 2014 5:42PM

Man working at laptop in home office (© Mark Bowden/Getty Images)By Allison Linn, CNBC.com CNBC.com


If you are dreading doing your taxes this season, don't blame the Internal Revenue Service for making it so hard.

 

After all, it's the nation's elected officials who have passed all those tax laws over the years -- for better or for worse.

 

"We have come to use the tax system as if it is a cure for every social and economic problem the country faces," said Michael Graetz, a professor of tax law at Columbia Law School and a proponent of major tax reform.

 

That's not necessarily what the federal tax system was intended for when it was introduced about 100 years ago.

 

But over the years, the tax system has evolved into something more akin to an octopus, with tentacles that direct social policy, help to stimulate the economy and try to encourage Americans to make choices like saving for retirement, going to college and owning a home.

 

"The government is using the tax system -- and provisions in the tax system -- to encourage particular behavior on the part of the individual," said Roberton Williams, Sol Price Fellow with the Tax Policy Center think tank.

 

In fact, the tax code has now become so complex that few people can even do their own taxes without help. More than half of Americans use a tax professional, according to the IRS, and many more use tax preparation software.

 

Meanwhile, almost everyone is fretting that they are somehow paying more than everyone else.

 

"The complexity reduces people's trust in the system," Williams said.

 

And yet, the tax code keeps getting more complex. One reason: Politics. 

Almost no politician wants to say they are raising people's taxes, but most politicians are thrilled to tell voters they are lowering people's tax bills. Experts say that's led to a dizzying array of tax breaks, including multiple, confusing tax incentives for the same thing, like paying for college.

 

"They overlap and they don't have consistent goals," Graetz said. "Difficult decisions haven't been made."

 

The tax system provides financial benefits to taxpayers at all levels, and it has become a major way for delivering on social policies to help lower-income Americans.

 

Instead of giving out cash aid, Williams said, politicians have increasingly favored providing a tax break, such as the Earned Income Tax Credit.

 

There are plenty of advantages to that system. Many believe the credit played a key role in getting more poor, single mothers into the workplace amid welfare reform in the mid-1990s, and the U.S. Census Bureau has found that such tax breaks help to keep a significant number of Americans out of poverty.

 

But it also means that many people end up paying no federal income tax at all. Williams estimates that more than 4 in 10 Americans will pay no federal income tax this year, although the share is expected to decrease in years to come.

 

Those are mainly workers who are subject to payroll taxes, for things like Medicare or Social Security, but have zeroed out their income tax bill because of things like itemized deductions or the child income tax credit.

 

The group also includes older people who don't have much income beyond Social Security, plus very poor people. A very small group has other special circumstances, such as a hefty foreign tax bill, according to the Tax Policy Center.

 

"These are no lucky duckies," said Joseph Thorndike, a historian with the nonprofit Tax Analysts, which reports on tax issues. "This is not a luxurious group to belong to."

 

Still, Thorndike notes that many Americans don't see it that way. Presidential candidate Mitt Romney famously blasted the then "47 percent" for being overly reliant on the government, and Thorndike said many Americans feel like they're getting a raw deal if some people end up owing taxes and others don't.

 

That's one of many reasons experts often argue that the country is ripe for another round of comprehensive tax reform.

 

"We've got a system that's very badly broken," Graetz said.


Most would agree it makes sense to simplify the system, but actually doing so raises the incredibly fraught question of which tax breaks should get reformed away. Home offices? Education? Capital gains?

  

"One man's benefit is another man's loophole," Williams said.

 

Still, many say that there would be clear benefits to at least cleaning up the tax system.

 

For starters, it would save Americans money -- and time -- if they didn't have to track down so many receipts and other paperwork, and then either slog through the forms themselves or pay someone to do it.

 

It also might make people just a little less bitter about doing their taxes, and a little less suspicious that they are getting a raw deal.

 

"The simpler the tax system were, the easier it would be to figure out there's no good way to cheat," Williams said.


Still, experts say it's unlikely the nation will see serious tax reform anytime soon. If anything, the IRS is likely to get more responsibility, because of its role in implementing the Affordable Care Act.

 

That's leaving the IRS doing even more -- with less and less money, thanks to Congress' decision to cut the IRS budget even further this year.

 

Some say that's the wrong way to make paying taxes simpler and more palatable.

 

"If you want the tax system to work better, you have to pay for it," Thorndike said.


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214Comments
Feb 3, 2014 7:18PM
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The tax code has become a convoluted mess.  On top of that the folks at the IRS apparently provide incorrect data more than 20% of the time to citizens who call them with questions regarding the tax code.

How about a flat tax of 10% for EVERYONE!  That means the guy making $1 Million is going to pay $100K and the guy making $10K only has to pony up $1K.  Ooops, I can hear the screams now, "that's not fair."  Too bad, I'm tired of 47% of the populace not having any skin in the game!

Feb 3, 2014 6:48PM
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incorporate a flat tax...then abolish the IRS.
Feb 3, 2014 7:32PM
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The  best idea so far is to ABOLISH  the IRS and replace the broken income tax  with the "FAIR TAX"
The fair tax is just that...... EVERYONE PAYS not just half the country.  

Basically its a national sales tax, everyone gets a  refund each year so NO ONE pays taxes on essentials.

Best of all, the politicians can't f**k with it so no back room sweet deals for companies that grease the right palms. 

Of course it really doesn't have a snowballs chance in becoming law as the politicians will never willingly give up that much power. 


Feb 3, 2014 7:40PM
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Democrats continue to rape the producers to buy the votes of the parasites.

There are those who work for a living and those who vote for their living.
Feb 3, 2014 6:58PM
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Im sure all the illegals love tax time.Its like another Christmas for them,courtesy of the tax payers.Some get big enough returns to buy a decent car every year.They claim numerous kids on tax returns.I understand it is about a 2 billion dollar problem a year.Think how much help that could do for actual American citizens.Mean while the American tax payers are the ones grabbing the bottle of aspirine during tax season.
Feb 3, 2014 6:50PM
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How about scrapping the tax code all together and come up with a new policy for funding the nation's NEEDS - let's call it a FEE (Fair, Equitable and Enough) - no more, no less!
Feb 3, 2014 7:17PM
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Blame the backward-thinking, oppressive Progressives.  They're the ones who just had to have the income tax 100 years ago.  And they told us it would never be more than 1%.
Feb 3, 2014 6:30PM
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What a shock!  Is there a lesson in this analysis for our partisan leaders? No way!
Feb 4, 2014 8:43AM
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Taxes on wages (in any form – flat or progressive) are the greatest evil of our American Republic. When government is free to steal from you, there are no limits to waste and abuse in government. If a person chooses to work extra hours or two jobs in order to better provide for themselves or their family, they should not be penalized, but that is what happens. The more you make by working harder and longer, the more money is stolen from you, and given to those who spend their lives living off the hard work of others.

The revenue the government needs to provide legitimate constitutional services should be obtained primarily from a national sales tax instead of a tax on wages. All would pay based on consumption, the more you spend the more you pay. The more luxury you surround yourself with, the more you pay. Your choice. A national sales tax system would capture money spent by criminals and by illegal aliens who currently pay near zero in taxes. There would of course need to be exemptions: Cars (already have a federal excise tax) Primary Residence/Rental Properties (vacation homes would be subject to tax/rental profit would be taxed) Fresh Food (Preprocessed foods and prepared meals would be taxed – only fresh/fresh frozen/canned goods would be exempt) Insurance Premiums, Health Care & Certified Education.

Adding another layer of tax to a business would not be fair. Businesses would need to be compensated by keeping a portion of the tax to cover the expense of collection and reporting. A percentage of .20 to .05 would be fair.

Feb 3, 2014 7:35PM
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Who spends the most lobbying against reforming the tax code?

 

H&R Block - Intuit(Turbotax) - Jackson Hewitt - and the like

When dimwits quit taking talking points for their partisan "team" as Fact and/or Scripture maybe we can all have an intelligent conversation about what our options are.

Feb 3, 2014 8:07PM
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OK,  here's what's wrong with our tax code and laws.  It's right there in the story.  Most of you missed it.  If you want to retry reading it before I give away the ending of this sad story.  STOP READING NOW.   Did you find it?

 

"In fact, the tax code has now become so complex that few people can even do their own taxes without help. More than half of Americans use a tax professional, , and many more use tax preparation software."  More than half + many more than half the way the sentence is written is more than 100%.  This is exactly how our tax code is written with double talk and innuendo.  Yes, I know what they meant just like we all know what our politicians meant to do. 



Feb 5, 2014 8:33AM
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A Flat tax, no exemptions. This would give no incentive for abusing tax write offs. Such as having lots of kids you can't afford, or animals or whatever. The last discussion was about 18% it is very doable. The other side of the coin is overspending. I'm against the over military bulley country we have become, a trillion a year. We give away billions every year. What about the poor people here?
Feb 3, 2014 7:23PM
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And our great President has hired over 2000 new people in the IRS to make things easier.

And if you believe that you should have your head examined.  
Feb 4, 2014 8:01PM
Feb 4, 2014 10:30PM
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John Hewitt, founder of Liberty Tax said in a talk I attended, that the IRS collects money for the government and controls our behavior through tax breaks and credits. According to Mr. Hewitt, a flat tax removes their ability to control us, which is why we will NEVER have a flat tax.


I think politicians get aroused over the thought of subjecting us to their every whim (like banning 44oz sodas) and have wet dreams about all of OUR money THEY get to spend. Power is an aphrodisiac, which is why guys like Anthony Weiner are psychologically drawn to "public service".

Feb 3, 2014 8:11PM
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Things will be no better as long as Ameicans refuse to stand up to the clowns in CONgress.  By making taxes difficult, more people will not take the tax credits they can because they, like me, do not know them.  So CONgress takes in billions, I feel sure, by having complicated tax laws.  They need money for Kerry to take with him to scatter all over other countries while America hurts.  They also need that money to look big when they give away 13000 trucks costing half a million each.  But, Bullymerica wants to be called a "superpower" it seems.  When two inches of snow in two cities make national news on the weather channel, I wouldn't call Bullymerica a "superpower!"  It seemed a wimpy country when two inches of snow kept children at school all night and stranded others on buses. God brought two cities to their knees with just two inches of snow!  Praise God!!!!
Feb 4, 2014 11:25PM
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So many people are employed,directly and indirectly,with the tax system that to tame the BEAST,would be suicide to any person or group. The only hope for a fix,really, is a total and complete collapse of all burdensome public, as well as private agencies!
Feb 5, 2014 10:55AM
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Its amazing to read the posts on this issue. It almost makes me think their is hope for this country and the ideals of the Tea Party of fair and equitable taxing, reasonable levels of spending, and a balanced budget can prevail, especially since this is on MSN. I must be dreaming.

Now damn it, lets vote in the fall like we mean it! No more progressives with ever expanding entitlements, no more RINOs, who talk one way and vote another ! Real conservatives, with fiscally sound values, that is what can saving this sinking economy and the U.S from becoming another economic Titantic.

Feb 5, 2014 9:44AM
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I guess it would be George Bush, I suspect if you asked the laughing lying POTUS Obama that would be his answer.
Feb 5, 2014 9:33AM
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"Correct economic and social problems"? In other words buy votes with our money.
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