Americans spend 6.1 billion hours on their taxes

More proof that something needs to be done about the current tax code.  Hopefully, the 112th Congress will begin to address this problem.


NEW YORK (CNNMoney) -- Filing taxes takes too long, costs too much money and is far too overwhelming a process for taxpayers.

That's the message from national taxpayer advocate Nina Olson, the watchdog charged with monitoring the Internal Revenue Service.

"There has been near universal agreement for years that the tax code is broken and needs to be fixed," Olson said in statement that accompanied her annual report to Congress released Wednesday."Yet no broad-based attempt to reform the tax code has been made."

Olson said the need for reform is clear.

Her analysis of IRS data shows that taxpayers and businesses spend 6.1 billion hours a year complying with tax-filing requirements.

"If tax compliance were an industry, it would be one of the largest in the United States," the report says. "To consume 6.1 billion hours, the 'tax industry' requires the equivalent of more than three million full-time workers."

Olson is a government official whose job is to highlight for Congress the most serious problems facing taxpayers. While it's probably not news for most Americans that the tax code is confusing, the report also points to serious problems with IRS enforcement of the code.

Sad but Predictable...

From last week's Washington Post...

Capitol Hill employees owed $9.3 million in back taxes last year, data show
By T.W. Farnam
Washington Post Staff Writer

Capitol Hill employees owed $9.3 million in overdue taxes at the end of last year, a sliver of the $1 billion owed by federal workers nationwide but one with potential political ramifications for members of Congress.

The debt among Hill employees has risen at a faster rate than the overall tax debt on the government's books, according to Internal Revenue Service data. It comes at a time when some Republican members are pushing for the firings of government workers who owe the IRS and President Obama has urged a crackdown on delinquent government contractors.

The IRS information does not identify delinquent taxpayers by name, party affiliation or job title and does not indicate whether members of Congress are among the scofflaws. It shows that 638 employees, or about 4 percent, of the 18,000 Hill workers owe money.

The average unpaid tax bill is $12,787 among the Senate's delinquent taxpayers and $15,498 among those working in the House.

IRS debt among government workers has surfaced repeatedly as a political issue over the years, most recently when Rep. Jason Chaffetz (R-Utah) introduced legislation this year to fire federal workers who owe back taxes unless they have entered into a payment plan. Eight Republicans co-sponsored the bill. No Democrats have signed on, and some have said firings would reduce the government's prospects of being paid.

"If you're on the federal payroll and you're not paying your taxes, you should be fired," Chaffetz said in an interview. He said the policy should apply across the board and "there should be no special exemptions."

An agency-by-agency breakdown of IRS debt is not published but is available in a redacted form from the agency upon request. Along with the Capitol Hill totals, it shows that three employees at the Office of Government Ethics owed a combined $75,000. And 41 employees at the Executive Office of the President owed $831,000 altogether - about the same amount as during the last year of George W. Bush's administration.

Some tax experts and watchdog groups say that Capitol Hill employees have an added obligation to settle IRS debts.

"Congress and their staff - because they are the people who write the tax laws and because they work for the public - have to be held to a higher standard," Steve Ellis, vice president of the watchdog group Taxpayers for Common Sense, said when told of the IRS numbers.

"These are hard times, but they are on the government payroll," said Mortimer Caplin, an IRS commissioner for presidents John F. Kennedy and Lyndon Johnson and a founding partner of the Caplin & Drysdale law firm. "The idea of paying taxes is kind of fundamental to a sound democracy, and they certainly have a special obligation in that regard."

Nationwide, debt to the IRS has been rising steadily, even before the current economic downturn, with $103.2 billion owed at the end of last year. Tax experts say that delinquencies are another sign of economic pressures on American families, but they also may represent bad individual money management or skewed spending priorities.

On Capitol Hill, recent increases in delinquencies also may reflect the unusual nature of the workforce, which turns over dramatically when a new political party comes into power.

From 2004 through 2006, the last three years that Republicans were in power, the total amount of back taxes owed each year by congressional workers hovered just below $9 million. But in 2007, when Democrats took control of both houses, it dropped to $6.8 million. Since then, it has increased by 37 percent.

Jock Friedly, who publicizes congressional salaries on the Web site LegiStorm, said many new staffers come from the private sector, where they worked as lobbyists or in other higher-paying jobs. "They go to a somewhat lower-paying government job and then, over time, debt starts to build up," Friedly said.

During 2008 and 2009 - when the financial crisis took hold and the economy started sinking - the Senate debt increased 80 percent and the House debt increased 25 percent.

Aides to Senate Majority Leader Harry M. Reid (D-Nev.) declined to comment, and aides to House Speaker Nancy Pelosi (D-Calif.) did not respond to a request for comment.

Less Than Six Months Until the Largest Tax Hikes In History

"No family making less than $250,000 a year will see any form of tax increase."
-- Barrack Obama, September 12, 2008

In just under six months, the largest tax hikes in the history of America will take effect. They will hit families and small businesses in three great waves on January 1, 2011:

First Wave: Expiration of 2001 and 2003 Tax Relief

In 2001 and 2003, the GOP Congress enacted several tax cuts for investors, small business owners, and families. These will all expire on January 1, 2011:

Personal income tax rates will rise. The top income tax rate will rise from 35 to 39.6 percent (this is also the rate at which two-thirds of small business profits are taxed). The lowest rate will rise from 10 to 15 percent. All the rates in between will also rise. Itemized deductions and personal exemptions will again phase out, which has the same mathematical effect as higher marginal tax rates. The full list of marginal rate hikes is below:

- The 10% bracket rises to an expanded 15%
- The 25% bracket rises to 28%
- The 28% bracket rises to 31%
- The 33% bracket rises to 36%
- The 35% bracket rises to 39.6%

Higher taxes on marriage and family. The “marriage penalty” (narrower tax brackets for married couples) will return from the first dollar of income. The child tax credit will be cut in half from $1000 to $500 per child. The standard deduction will no longer be doubled for married couples relative to the single level. The dependent care and adoption tax credits will be cut.

The return of the Death Tax. This year, there is no death tax. For those dying on or after January 1 2011, there is a 55 percent top death tax rate on estates over $1 million. A person leaving behind two homes and a retirement account could easily pass along a death tax bill to their loved ones.

Higher tax rates on savers and investors. The capital gains tax will rise from 15 percent this year to 20 percent in 2011. The dividends tax will rise from 15 percent this year to 39.6 percent in 2011. These rates will rise another 3.8 percent in 2013.

Second Wave: Obamacare

There are over 20 new or higher taxes in Obamacare. Several will first go into effect on January 1, 2011. They include:

The “Medicine Cabinet Tax” Thanks to Obamacare, Americans will no longer be able to use health savings account (HSA), flexible spending account (FSA), or health reimbursement (HRA) pre-tax dollars to purchase non-prescription, over-the-counter medicines (except insulin).

The “Special Needs Kids Tax” This provision of Obamacare imposes a cap on flexible spending accounts (FSAs) of $2500 (Currently, there is no federal government limit). There is one group of FSA owners for whom this new cap will be particularly cruel and onerous: parents of special needs children. There are thousands of families with special needs children in the United States, and many of them use FSAs to pay for special needs education. Tuition rates at one leading school that teaches special needs children in Washington, D.C. (National Child Research Center) can easily exceed $14,000 per year. Under tax rules, FSA dollars can be used to pay for this type of special needs education.

The HSA withdrawal tax hike. This provision of Obamacare increases the additional tax on non-medical early withdrawals from an HSA from 10 to 20 percent, disadvantaging them relative to IRAs and other tax-advantaged accounts, which remain at 10 percent.

Third Wave: The Alternative Minimum Tax and Employer Tax Hikes

When Americans prepare to file their tax returns in January of 2011, they’ll be in for a nasty surprise—the AMT won’t be held harmless, and many tax relief provisions will have expired.

The major items include:

The AMT will ensnare over 28 million families, up from 4 million last year. According to the left-leaning Tax Policy Center, Congress’ failure to index the AMT will lead to an explosion of AMT taxpaying families—rising from 4 million last year to 28.5 million. These families will have to calculate their tax burdens twice, and pay taxes at the higher level. The AMT was created in 1969 to ensnare a handful of taxpayers.

Small business expensing will be slashed and 50% expensing will disappear. Small businesses can normally expense (rather than slowly-deduct, or “depreciate”) equipment purchases up to $250,000. This will be cut all the way down to $25,000. Larger businesses can expense half of their purchases of equipment. In January of 2011, all of it will have to be “depreciated.”

Taxes will be raised on all types of businesses. There are literally scores of tax hikes on business that will take place. The biggest is the loss of the “research and experimentation tax credit,” but there are many, many others. Combining high marginal tax rates with the loss of this tax relief will cost jobs.

Tax benefits for education and teaching reduced. The deduction for tuition and fees will not be available. Tax credits for education will be limited. Teachers will no longer be able to deduct classroom expenses. Coverdell Education Savings Accounts will be cut. Employer-provided educational assistance is curtailed. The student loan interest deduction will be disallowed for hundreds of thousands of families.

Charitable contributions from IRAs no longer allowed. Under current law, a retired person with an IRA can contribute up to $100,000 per year directly to a charity from their IRA. This contribution also counts toward an annual “required minimum distribution.” This ability will no longer be there.

(Prepared by Americans for Tax Reform)

Tax Evaders Unite!

Well, the wheels seem to have fallen off the Presidential motorcade as tax issues with President Obama's nominees took another twist today. After getting his Treasury nominee, significant and illegal tax issues notwithstanding, through the Senate confirmation process, President Obama's luck has run out.

Former Senate Majority Leader and Health and Human Services Secretary nominee Tom Daschle (center of photo from 2002 when he used his wrong hand to recite the Pledge of Allegiance) withdrew his name from consideration this morning following a series of reported federal tax violations. The Obama Machine and Dem leadership in Congress tried to downplay Daschle's problem over the past few days as they did several weeks ago in the case of newly sworn-in Treasury Secretary Tim Geithner, who defrauded the government of tens of thousands of dollars in payroll taxes while working at the International Monetary Fund.

In addition to Daschle's withdrawal, Obama's Chief Performance Officer nominee Nancy Killefer also removed herself today from consideration due to previous tax problems.

How ironic that the party which celebrates April 15 as a national holiday and wants nothing more than to overtax "working" Americans to pay for unnecessary socialized services for all Americans would lose two nominations on the same day to tax evasion.

Economic Impacts of McCain and Obama Tax Plans