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1 Scott A. Hodge, Perspectives on the Need for Tax Reform 1 (2016)

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May 25, 2016

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                              Written Testimony


                                Scott A. Hodge


                                Tax Foundation

  Before the Ways and Means Subcommittee on Tax Policy

      Perspectives on the Need for Tax Reform

Thank you Chairman Boustany and Ranking Member Neal for the opportunity to talk
with you today about the need for tax reform.

There are many reasons to reform our tax code, but the cost of tax complexity to our
nation's economy should be near the top of that list.

Over the last century, the federal tax code has expanded dramatically in size and
scope. In 1955, the Internal Revenue Code stood at 409,000 words in length. Since
then, it has grown to a total of 2.4 million words: almost six times as long as it was in
1955 and almost twice as long as in 1985.

However, the tax statutes passed by Congress are only the tip of the iceberg when
it comes to tax complexity. There are roughly 7.7 million words of tax regulations,
promulgated by the IRS over the last century, which clarify how the U.S. tax statutes
work in practice. On top of that, there are almost 60,000 pages of tax-related case law,
which are indispensable for accountants and tax lawyers trying to figure out how much
their clients actually owe.

Tax complexity creates real costs for American households and businesses, starting
with just the time it takes us to comply with the tax code. According to the latest
estimates on Reginfo.gov, Americans spend over 8.9 billion hours complying with IRS
tax filing requirements, equal to nearly 4.3 million full-time workers doing nothing
but tax return paperwork. To put that in perspective, 4.3 million is greater than the
populations of 24 U.S. states.

Put in dollar terms, those 8.9 billion hours add up to more than $400 billion each year1
in lost productivity, or greater than the gross state product of 36 states.

Tax complexity, and the fear of making mistakes, motivates about 62 percent of all
taxpayers to use tax return preparers, but the percentage climbs to about 73 percent
for the poorest Americans claiming the EITC.2

But tax complexity creates other costs besides our lost time. Many of the most

1  Authors calculations: See the appendix for details.
2  National Taxpayer Advocate, Report to Congress: Fiscal 2010 Objectives, June 30, 2009, p. xxii. http:/vww.irs.gov/pub/

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