Report Paints Steps to US Tax Reform
January 7, 2011 Taxation in USA
A newly released report is highlighting the shortcomings of the US Internal Revenue Service’s current tax administration system such as over-burdensome tax compliance requirements, excessive use of tax liens, and poor public awareness as roadblocks to an effective tax regime.
On January 5th the Taxpayer Advocate Office of the US Internal Revenue Service (IRS) released its annual report identifying the IRS’s shortcoming and calling for extensive reforms of the national tax administration system.
Presenting the report, the head of the Office of the Taxpayer Advocate Nina Olsen said, “…there has been near universal agreement for years that the tax code is broken and needs to be fixed.” The report attempts to detail the various ways in which the current IRS system of tax administration is over-burdening tax payers, and ultimately damaging tax revenues and the economy.
According to the report, all the taxpayers and businesses in the US spend a combined total of 6.1 billion hours complying with their tax-filing requirements. During the press conference releasing the report, Nina Olsen claimed that this amount of time is equivalent to the annual workload of three million full-time workers. The report elaborated further on the perceived burden, claiming that 60 percent of taxpayers now utilize a tax preparer every year, and a further 29 percent use dedicated software tax packages to arrange their taxes, with only a small remainder opting to handle their taxes personally. Subsequently, the median individual taxpayer now spends USD 258 to complete their tax forms every year.
The report suggested that the IRS has developed an over-dependence on tax liens as a tool to ensure compliance. Nine Olsen described the use of liens as damaging to “the IRS’s overriding objective of increasing long-term voluntary compliance with the tax laws.” Liens serve to impose unnecessary harm on financially struggling tax payers. According to data within the report, throughout the 2010 financial year, the IRS imposed USD 1.1 million worth of liens on taxpayers. The number of liens filed over the last seven years has now reached five million, with the annual amount rising every year. According to the report, the IRS has no data to justify liens as having any tax revenue or collections benefits. The report goes on to say that as under current US legislation, tax liens are shown on a taxpayer’s credit records for at least seven years, and it is conceivable that this could severely affect a taxpayer’s ability to attain credit. It was further pointed out that small- and medium-sized businesses would suffer in particular, directly slowing the economy.
Within the report it is also claimed that in order to successfully reform the US tax system, the IRS needs to run a public awareness on tax issues. According to the report, taxpayers need to be educated about the trade-offs between tax breaks and low personal and cooperate-tax rates. Summarizing the findings of the report, Nina Olsen said, “…our aim is to improve public knowledge of the trade-offs involved and to help policymakers and the taxpaying public conduct a more informed conversation about tax reform alternatives.”
Photo by David Reber’s Hammer Photography