Dreaded Tax Returns Buried in Paper Every spring, you can tell it’s close to the April 15 tax deadline by the anxious faces of frustrated taxpayers and exhausted accountants. The U.S. tax system is one of the most complicated in the world, with almost 17,000 pages of tax code and more than 600 forms. Record keeping, education, and compliance cost the nation $265 billion annually. In 2005 it took about 115,000 Internal Revenue Service (IRS) employees and almost $10.7 billion to collect about $1 trillion from 125 million taxpayers and 7 million businesses. Time is Money Because the tax code has become so complex, more and more Americans hire tax preparers to help them with their returns. On top of that, about 2.2 million taxpayers overpay—by an average of $438—because they either don’t itemize deductions or don’t include all deductions or exemptions they could claim. Although many Americans file their tax returns online, they still spend an average of 17 hours completing the forms. The complexity of the system has caused many people to long for a simpler flat-tax system. The European Solution Several eastern European countries have adopted a flat tax, where everyone pays the same percentage above an exempt amount, regardless of income. The first was the Baltic republic of Estonia, which adopted a flat tax rate of 26 percent in 1994. Most Estonians take only 5 to 20 minutes to complete and electronically file an “e-postcard.” The country’s tax department spends one penny for every dollar of income tax collected, compared to 25 cents the IRS spends in the United States. Analyzing the Impact Question 1. Summarizing Why is the U.S. income tax system so complicated? 2. Drawing Conclusions Do you think it is easier for a small country like Estonia to implement a flat tax than it would be for the United States? Explain.
Dreaded Tax Returns
Buried in Paper
Every spring, you can tell it’s close to the April 15 tax deadline by the anxious faces of frustrated taxpayers and exhausted accountants. The U.S. tax system is one of the most complicated in the world, with almost 17,000 pages of tax code and more than 600 forms. Record keeping, education, and compliance cost the nation $265 billion annually. In 2005 it took about 115,000 Internal Revenue Service (IRS) employees and almost $10.7 billion to collect about $1 trillion from 125 million taxpayers and 7 million businesses.
Time is Money
Because the tax code has become so complex, more and more Americans hire tax preparers to help them with their returns. On top of that, about 2.2 million taxpayers overpay—by an average of $438—because they either don’t itemize deductions or don’t include all deductions or exemptions they could claim. Although many Americans file their tax returns online, they still spend an average of 17 hours completing the forms. The complexity of the system has caused many people to long for a simpler flat-tax system.
The European Solution
Several eastern European countries have adopted a flat tax, where everyone pays the same percentage above an exempt amount, regardless of income. The first was the Baltic republic of Estonia, which adopted a flat tax rate of 26 percent in 1994. Most Estonians take only 5 to 20 minutes to complete and electronically file an “e-postcard.” The country’s tax department spends one penny for every dollar of income tax collected, compared to 25 cents the IRS spends in the United States.
Analyzing the Impact Question
1. Summarizing Why is the U.S. income tax system so complicated?
2. Drawing Conclusions Do you think it is easier for a small country like Estonia to implement a flat tax than it would be for the United States? Explain.
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