Tax Season: 16 billion hours, $1.6 trillion

The following article was published in the Burlington Free Press, April 13, 2016.
Author: Art Woolf, Associate Professor of Economics at the University of Vermont.

It’s the time of year when we’re all doing our small part to support the government and all its endeavors. Some people want the government to do even more — preferably with other people’s money. I refer, of course, to the annual ritual of completing and filing our income tax forms, which are due this year on April 18.

Why not on April 15? It’s spelled out clearly in Section 7503 of the tax code and without going into all the specifics, it has something to do with weekends, holidays, the District of Columbia, and the Emancipation Proclamation.

At any rate, both our federal 1040 and state IN-111 forms are due on Monday. Everyone knows what the 1040 is, but the IN-111 form has always puzzled me. Why does Vermont have a tax form that uses Indiana’s abbreviation? Why not rename and renumber it and make it easier to remember? My suggestion is to call it form VT-802. That means something.

But having a less-than-memorable number is not a good reason to dislike filling out tax forms. Most of us have other reasons. Like the time we have to spend getting our information together and actually filling out the forms. The IRS estimates it takes a total of 16 billion hours for people and businesses to comply with federal tax filing requirements. That’s the equivalent of 3 million full time workers — twice the number of Americans who work at Walmart.

The IRS also estimates it takes you 16 hours to compile all the necessary records and complete the federal income tax forms — the equivalent of two full days of work that could be used to get your garden ready for spring planting. Or to read a good book.

That time doesn’t include filling out the increasingly complex Vermont tax forms. Thirty years ago, the state tax form and instruction package was about 10 pages. Now there are more than 50 pages of instructions, worksheets, and forms, and hardly anyone understands exactly what’s going on or why they owe what they do — and that’s just as true for Washington as it is for Montpelier.

That’s why most filers use tax preparation software. The IRS Taxpayer Advocate, an official IRS employee, criticizes the IRS and the tax code (meaning Congress) for its complexity. When the organization that administers the tax code criticizes it, you know you have a problem.

Then there’s the actual amount we pay in income taxes. In 2013, Vermonters paid $2 billion in federal income taxes, a small fraction of the $1.6 trillion the IRS collected. But we’re a small fraction of the U.S. population. We also paid about $620 million in state income taxes to Montpelier that year.

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