A little more than 100 years ago, this gem appeared in the Chicago Tribune under a Washington dateline:
“After weeks of study of the complexities of the income tax law, treasury officials today issued a 90 page booklet, christened it, ‘Regulations No. 33,’ and sent it forth to collectors of internal revenue in the expectation that it will clear up many of the misunderstandings concerning the law which have arisen throughout the country.”
Ah, for such a simpler time when people thought it was possible to explain the federal income tax system in just 90 pages.
The story went on to explain that, “It takes 23 pages of the book to set forth the law itself,” with the other 67 pages explaining how to figure net income, exemptions and deductions.
Then comes this prediction: “ there will be other regulations in the future when new points are raised.”
You think? Those “other regulations” now would take 73,954 notebook-sized pages to explain, and the size grows each year like some Petri dish experiment gone awry.
One hundred years ago, the income tax was only in its second year and most people didn’t earn enough to have to worry about it. Still, the obvious complexity of the law, even then, leads one to wonder why our ancestors weren’t smart enough to kill it in its infancy.
As you contemplate Tuesday’s looming tax deadline, perhaps with a pencil poised and a W-2 form in hand, it won’t do any good to think about just how complex things have gotten. You might freeze up entirely.
But just in case you want to think about it anyway, here's something to chew on:
On Tuesday, the U.S. Government Accountability Office issued a report that highlights what you’re up against. Its researchers went undercover to 19 randomly selected tax preparers, just to see how well they do their jobs. What they found doesn’t inspire confidence. Only two of them calculated the right refund owed to the taxpayer. The rest made errors that ranged from $52 less than what was owed to $3,718 more.
These errors ranged from not reporting cash tips to claiming children as eligible for the Earned Income Tax Credit when they weren’t.
While the sample size is too small to make any general conclusions, the GAO notes it analyzed data from 2006 to 2009 and found errors made both by paid preparers and individuals who dared to fill out forms themselves. But the preparers fared worse, with 60 percent making errors compared to 50 percent of the do-it-yourselfers.
The same report said about 56 percent of the returns filed in 2011 were done by someone paid for their efforts. More recent figures, from March of this year, show that 55 percent of the paid preparers were “unenrolled,” meaning they weren’t subject to any sort of IRS regulation.
In other words, just about anyone can advertise they will do your taxes for a fee, but they may not know what they’re doing and they might not be around if the IRS comes a-knocking.
The GAO recommends fixing this mess by letting the IRS regulate tax preparers.
Maybe they could start by studying a 90-page booklet, and letting things grow from there.
Ask just about anyone who isn’t in Washington and you might get a different solution — enact a much simpler tax code.
Not everyone along the Potomac is oblivious to this. According to the Washington Post, Sen. Ron Wyden, D-Ore., who recently chaired a hearing on this along with Utah Sen. Orrin Hatch, said, “As long as the U.S. tax code is so overgrown and complicated that most American have to seek out help to file, they shouldn’t have to worry about crooked or incompetent tax preparers.”
Unfortunately, the effort doesn’t have a lot of traction. A Gallup poll conducted last month found only 1 percent answering that taxes are the most important issue facing the nation.
So we muddle on with a system so complex that marginal rates bear little resemblance to what people actually pay and that leads to errors by about half the people. After 100 years, we’re used to it.