Sunday, January 10, 2010

The bed buffaloes in our tax code have more than doubled in less than a decade!

The graph shown above comes from 100 Million Unnecessary Returns, originally published by Professor Michael Graetz as an article in Yale Law Journal in 2002, then expanded into a book of the same name. (Clicking on the image will show a higher resolution version.) IRC (the light grey in the graph) refers to the Internal Revenue Code (the statutory tax law enacted by Congress) and CFR (the black in the graph) refers to the IRS Code of Federal Regulations, the administrative tax law written by the Treasury Department under the authority delegated to it to flesh out the details of the IRC.

Here's an excerpt of what Professor Graetz wrote describing the income tax system less than a decade ago, referring to the graph above showing exponential growth in the complexity of the tax code during the last century:

Although the overall level of federal taxes is now at a post-World War II high, income taxes for many middle class families have been reduced by a variety of tax cuts for specified expenditures. Those tax cuts, along with more promised by the 2001 Act, coupled with the press’s focus on forthcoming financial troubles with Social Security and Medicare, have kept the public clamor for tax reform at bay. Nevertheless, a poll in 1999 revealed that nearly half of the American people favor changing to a “completely different” tax system.

They have a point. Substantively, the income tax is a mess. Taxpayers at every income level confront extraordinary complexity. In 1940, the instructions to the Form 1040 were about 4 pages long. By 1976, they had expanded to 48 pages. For the tax year 2001, the instruction booklet alone was 122 pages. Form 1040 for the year 2001 had 11 schedules and 20 additional worksheets.

As of May 2000, the Code contained about 700 provisions affecting individuals and more than 1500 provisions affecting businesses—a total of 1.4 million words—making the tax law more than six times larger than War and Peace, and considerably harder to parse. (See Figure 6.)

The regulations contained another 8 million words, spanning almost 20,000 pages. During calendar year 2000, the Treasury and the IRS published 60 Treasury Decisions, 45 sets of proposed regulations, 58 Revenue Rulings, 49 Revenue Procedures, 64 Notices, 100 Announcements, 2400 Private Letter Rulings and Technical Advice Memoranda, 10 Actions on Decisions, and 240 Field Service Advice documents. No one can know with any confidence what the income tax law requires.

In the past decade, the President and Congress have used the income tax the way my mother employed chicken soup: as a magic elixir to solve all the nation’s economic and social difficulties. If the nation has a problem in access to education, child care affordability, health insurance coverage, or the financing of long-term care, an income tax deduction or credit is the answer.

As the graph above shows, the bed buffaloes in the tax code grew exponentially in the last century.

Have things gotten any better since then?


Professor Graetz cited a figure of 1.4 million words in the IRC tax code in May 2000, based on a Joint Committee Taxation report released in 2001.

In preparing a report to Congress she delivered in January 2009, National Taxpayer Advocate Nina Olson estimated the number of words in the IRC tax code had grown to 3.7 million.

That's far more than a doubling in less than a decade.

As the graph shows, the bed buffaloes in the tax code were already growing exponentially in the 20th century.

That growth accelerated even faster in the first decade of the 21st century.

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