“One of the few drawbacks of residing in the US is the annual encounter with Form 1040, which is to personal finance as waterboarding is to asking some questions,” Clive Crook, a British national and former Washington columnist for the Financial Times, once wrote. Canadians who, this year, have to contend with the International Revenue Service can certainly sympathize. And those who must file regularly to both the IRS and Revenue Canada—by virtue of double-citizenship or receiving income from both sides of the border, for example—can attest that returning to Canada’s income form after having laboured through U.S. taxes feels almost like a treat.
Completing the 2012 federal return will take Americans an average of 13 hours, estimates the IRS, which has to keep track of such things by virtue of the impudently named Paperwork Reduction Act. Then you can spend the other half of your weekend pouring over state and local taxes.
It wasn’t always like this. In 1989 a survey of 708 taxpayers found that the average time required to complete both federal and state income taxes was 3 hours. And that was before the advent of electronic filing. The same study put the out-of-pocket cost of filing a return— think, hiring an accountant—at $66 per capita. That number today is $210, according to the IRS, which comes to $112 in 1989 dollars.
The Tax Policy Center offers a brief and persuasive diagnosis. For one, they say, “the political process creates complexity.” Politicians and interest groups generally want to limit the tax burden on certain groups of people or types of income, which translates into longer tax forms aimed at identifying such categories. Tax fraud also invites complexities, as regulators tighten the web of reporting requirements in an attempt to deter or catch dodgers. That tends to become a vicious cycle, notes the TPC, for tax evaders seem to have a limitless ability to work around the new rules, which then brings on further regulatory crackdowns. Finally, complicated tax provisions might also be the product of attempts to temporarily raise revenue or limit revenue loss when public coffers are depleted. Reagan’s 1986 tax reforms, for example, “created several complicated phase-outs and hidden taxes in order to raise revenue and meet distributional targets.”
Still, with the exception of number 3, these are common afflictions in any democracy. Does the rule of the people imply a slow and inexorable advance toward mind-boggling, despair-inducing tax complexity? Hardly, for U.S. returns are notoriously more intractable than Canada’s and many other countries.
One trait specific to the U.S. that has surely helped confuse taxpayers and fill accountants’ pockets has been a tendency in recent years to approve temporary tax measures, such as the Bush tax cuts of 2003, which were set to expire in 2013 but were mostly made permanent. (The Tax Policy Centre does mention the problem, though elsewhere on the site.)
After briefly embracing the idea of tax reform as an area where both Democrats and Republicans might find some points of agreement, Congress seems to have already given up on the daunting task. That’s too bad. Right now, the tax maze regularly deters many low- and middle income households from filing itemized returns.
I know how that happens. After labouring for 10 hours to combine my Canadian wages and U.S. freelance income, choosing between the option to check one single box called “standardized deduction” or a multitude of them called “itemized deductions” seemed like having to pick between a drink of water in the desert or doing calisthenics under the boiling sun.
In the end, I was done in about 12.5 hours. Just about average.
Erica Alini is a California-based reporter and a regular contributor to CanadianBusiness.com, where she covers the U.S. economy. Follow her on Twitter: @ealini.