Every year about this time most of us look forward to spending some quality time with a pile of tax forms and instructions. The length of the federal income tax code itself has been the topic of many discussions. The income tax code and its associated regulations contain almost 5.6 million words, seven times as many words as the Bible. Taxpayers now spend about 7.6 billion work hours a year trying to comply with 44,000 pages of tax laws! It is impossible for the average taxpayer to know, understand, and accurately apply all the provisions. By the way, if you go to the U.S. Government Printing Office web site, you can order a complete set of Title 26 of the U.S. Code of Federal Regulations. They will ship all twenty volumes to you at the bargain price of $974, shipping included. The current tax code is twice the length of Tolstoy’s War and Peace.
As a little history, in 1913, the passing of the 16th Amendment to the Constitution stated that The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration. In October of 1913, the Federal Government enacted it first permanent income tax law and the first Form 1040 was created. Today, the IRS collects trillions of dollars in taxes and processes more than 138 million returns annually. The annual preparation of Form 1040, filed by most individual taxpayers, consumes on an average 26 hours and 40 minutes.
Each year the topic of a simplified tax revision comes up and each year it is discussed and analyzed and never passed. Many knowledgeable people that I have spoken with suspect that the tax code is so intertwined with our economy that Congress does not really know the full financial impact of a more simplified tax code. We have created a monster that has taken on a life of its own.
The tax preparation industry is big business. According to the IRS, 138,893,908 individual tax returns were filed in 2007. Of those individual filers, roughly 60% of them used paid preparers to file their returns and approximately 30% of taxpayers used a tax software package to complete their annual returns. Now with fees ranging up to several hundred dollars per return, one can quickly see the industry is very large in terms of annual revenue. H & R Block Inc. generated more than $4.4 billion dollars in fiscal year 2008. The Turbo Tax unit of Intuit Inc. reported that in 2007, it had sold over 14,406,000 web and desk top units with an annual revenue of over $2.3 billion dollars.
One thing that almost all people today agree on is that we can no longer keep adding to the tax code and some form of a flat tax or a simplified tax return has to be instituted. The folks who work at the IRS are good people just trying to do their job, but they are caught in a bad, overextended tax system.