Complex Tax Code Could Hurt Individuals, But Help Corporations

While you might not hear a lot of stories about the IRS and filing your taxes until the April 15 deadline approaches, there are a lot of people who tend to file in February because they know they’ll be getting a refund (I’m usually one of those people). The refund might not be big, but it’s still nice to get a few dollars back to put into your bank account – especially in this economy. That’s why I wasn’t very thrilled to read that there are serious concerns about the workload being so heavy for the IRS that it might compromise the rights of some taxpayers.

According to USA Today, National Taxpayer Advocate Nina Olson submitted a report to Congress which says the workload increase is largely from several cuts to its budget (thanks to the GOP) and to the complexity of the tax laws.

Driving the IRS workload increase is increasing complexity of federal tax laws and regulations and frequent changes in the tax code — an estimated 579 changes in 2010 alone that had to be explained to taxpayers, entered in IRS computers and added to the agency's auditor training programs.

The IRS also has had to process a host of refundable tax credits enacted in recent years, such as the First-Time Homebuyer Credit and the Health Coverage Tax Credit. Compounding the workload increase, those programs have spawned a rise in bogus refund claims. Many were filed by thieves who stole the identities and financial data of honest taxpayers, the report said.

Olson’s report also said there should be a taxpayer bill of rights implemented that would prevent Americans from being unjustly penalized when filing their taxes. Some of the penalties she referenced are errors made automated programs that check the accuracy of tax returns that could prove costly for tax payers or simple math errors that are caught but improperly reported to individuals (which could cost tax payers both time and money trying to fix). While these might seem like small errors that don’t happen often, they can still add up – especially when the workload demands of the IRS are so high that they don’t have the time to properly vet the individual cases.

While this report obviously focused on how individual tax payers can be impacted by simple errors and an overworked IRS, I couldn’t help but think of how the increased complexity of the tax code in recent years (which leads to the overworked IRS) is also how the uber wealthy and large corporations are able to get away with paying almost nothing in taxes. There have been several reports, after all, about how two-thirds of corporations don’t pay any federal taxes. When you consider how this is up from 24 percent back in the 1980’s when Ronald Reagan was president, one has to wonder how the GOP can honestly claim that President Obama is out to get big business.

What this all really means is that while a complicated tax code might help big corporations pay nothing in taxes, it also results in a overburdened IRS that can be a hindrance on the Average Joes out there getting ready to prepare their tax returns. I don’t know about you, but doesn’t that seem to suggest we should take a serious look at in depth tax reform in this country?