Thursday, September 9, 2010


Here are some interesting facts and figures concerning our current tax system that were included in the “Report on Tax Reform Options” recently issued by the President's Economic Recovery Advisory Board -

* Taxpayers and businesses spend 7.6 billion hours and incur significant out of pocket expenses each year complying with federal income tax filing requirements. In monetary terms, these costs are roughly equivalent to at least 1% of GDP annually (or about $140 billion in 2008).

* Based on IRS research, on average individual tax filers spend more than 17 hours on tax-related matters each year. About 30% of the time is spent actually preparing and submitting a tax return, and the remaining 70% is spent on recordkeeping, tax planning, and other tax-related items. Recordkeeping alone is nearly half of the total time burden.

* Between 1987 and 2009, the instruction booklets sent to taxpayers for the Form 1040 increased in length from 14 pages to 44 pages of text.

* There have been more than 15,000 changes to the tax code since 1986.

* The tax system includes at least 18 different provisions benefiting taxpayers with educational expenses. The publication that discusses education benefits offers 11 definitions of a “qualifying expense” and a “qualifying institution” for 12 education-related tax provisions.

* The Government Accountability Office (GAO) estimated that for tax year 2005, 19% of eligible tax filers failed to claim either a tuition deduction or a tax credit for which they were eligible.

* An IRS study suggested that between 23% and 28% of EITC (Earned Income Tax Credit) payments in fiscal year 2006 were incorrect.

* Current law requires approximately 10 million dependents to file taxes each year to report relatively small amounts of tax. In 2005, 5.7 million dependent files (out of 9.9 million) paid less than $50 in taxes, and most of those 5.7 million owed no taxed and filed only to get a refund.

* More than 20 provisions in the tax code provide incentives to save for retirement and for other purposes like education and medical expenses. About half of all workers are not offered a retirement plan at work.

* Without legislative intervention to increase the Alternative Minimum Tax (AMT) exemption, more than 28 million taxpayers will need to pay the AMT in 2010; by 2020 the number would climb to more than 53 million.

* Overall, in fiscal year 2009, the IRS examined 1.4 million or about 1.0% of individual tax returns. The examination rates ranged from 0.4% of simple returns with total positive income under $200,000 up to 10.6% of returns with AGI of $10 million and over.

Do you think we need major changes to our income tax system?


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