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Tax Preparation: A Growth Industry
Daily Policy Digest

Tax Issues / Tax Compliance Costs

Thursday, June 06, 2002
When it comes to tax preparation, even simplicity isn't so simple any more, observers say. A recent survey found that 21 percent of all filers who use the simplified 1040EZ tax form were forced to use paid tax preparers this year -- up from 17 percent last year.

They aren't alone. Increasing numbers of Americans are throwing up their hands at tax time and employing professionals to do the job.

  • The Internal Revenue Service reports that 60 percent of all individual returns this year were signed by paid preparers -- up from 57 percent in 2001 and about 46 percent in 1986.
  • President Bush's tax cut, passed last year, included 441 changes and added a "rate reduction credit" line on this year's form, which has led to millions of taxpayer mistakes.
  • In addition, the number of Americans affected by the alternative minimum tax -- one of the most complex provisions in the tax world -- rose sharply this year to an estimated 2.7 million, from only about one million in 1999.
  • To appreciate how complex the tax code has become, consider in 1954, the nation's tax code, regulations and related material fit into 14,000 pages in nine volumes -- but this year it took 52,310 pages in 25 volumes.
Yale Law School professor Michael Graetz, also a former Treasury official, says it's "a disgrace to have a tax system where this many people have to pay people" to prepare their returns. "It simply increases their tax burden," he adds. "It's simply outrageous."

An ad from the tax preparation firm H&R Block captured the mood of most tax filers: "It took an act of Congress to pass 441 tax-law changes. Will it take an act of God to understand them?"

Source: Tom Hermann, "Tax Professionals Handled 60 Percent on Individual Returns this Year," Wall Street Journal, June 6, 2002.

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