Question 4: When we make major changes to the tax code do we need a transition strategy to implement them?
Associated Press poll thought that the federal tax code was too complicated, with 56% saying that they paid someone to do their taxes.
In 2011, economist Dr. Arthur Laffer estimated that the annual cost of complying with the federal tax code was about $431 billion, which at the time was about 30 cents for every dollar of income tax collected. $431 billion on tax compliance equates to the personal income of 8.6 million average income earners.
In 2013, the Commerce Clearing House (CCH) Standard Federal Tax Reporter estimated that the U.S. Federal Tax Code was about 74,000 pages. 6 billion hours per year equals a year’s work for approximately 29 million people.
According to U.S. Department of Labor statistics, there are 147 million employed and 9 million unemployed in the U.S. 6 billion hours equates to 18.5% of the total workforce and 19.7% of the employed workforce.
The Affordable Care Act and other federal mandates keep pushing these estimates higher and higher. Imagine how much better our personal and professional lives will be when this time and money is spent on productive and enjoyable pursuits, rather than on the tax bureaucracy.
Principle 4 for The Simple Tax says, “Major changes to the tax code require a transition strategy that enables people to prepare for the change.”
Millions of individuals and businesses have made billions of decisions based on the current tax code.
The challenge, of course, is that the current tax system is so complex and is so ingrained into nearly every aspect of our lives—that it will be difficult for us to simplify it too quickly, lest we cause utter economic chaos.
At a minimum, the cure should not be worse than the disease.