On average, taxpayers in the United States dedicate 13 hours to prepare their tax returns and spend $240 on tax preparation services. Additionally, last year, only 10% of callers managed to connect to a live agent at the underfunded and understaffed IRS, waiting an average of 22 minutes to have their questions answered.
In essence, the process of filing taxes in the US has led to a complex, costly, and time-consuming ecosystem. But why is this the case? Experts suggest that the tax system in the US goes beyond collecting taxes – Congress utilizes it as a means to attain economic and social objectives, placing the burden of executing those plans on an overworked IRS.
America’s Tax Code Wasn’t Always Complex
As a nation born out of a revolt against a tea tax and a battle cry demanding “no taxation without representation,” the United States struggled to establish a federal income tax for a considerable period. The initial version of a federal income tax was introduced by President Lincoln in 1862 to finance the Civil War, as per the IRS. However, it was abolished a decade later.
The income tax was reinstated in 1894 through the Wilson Tariff Act, which established an income tax division within the Bureau of Internal Revenue. Unfortunately, the income tax was invalidated by the Supreme Court a year later.
With the advent of World War I, Congress obtained the authority to collect income taxes from individuals and corporations after the ratification of the 16th Amendment by Wyoming in 1913. Subsequently, the US government imposed a 1% tax on the net personal income exceeding $3,000 and an additional surtax of 6% on incomes surpassing $500,000.
Following that, the introduction of the first Form 1040 marked the initiation of tax filing procedures as they exist today. The tax system then underwent further development. In 1942, President Roosevelt introduced the “Victory Tax,” which implemented a progressive tax system by introducing a “wealth tax.” This measure expanded the taxpayer base by lowering exemptions and provided provisions for medical and dental expenses. In 1944, the highest marginal tax rate reached 94%.
Successive administrations have oscillated between various policies, some of which have been contradictory
During President Ronald Reagan’s tenure, the Economic Recovery Tax Act of 1981 reduced individual tax rates, but President Bill Clinton raised the top tax rate for high-income earners while expanding the earned income tax credit. The Tax Cuts and Jobs Act under President Donald Trump lowered the statutory rates and increased the standard deduction. Most recently, the Inflation Reduction Act under President Joe Biden introduced clean energy tax breaks.
According to Daniel Bunn, President, and CEO of the Tax Foundation, the US tax system is as messy as its current Democratic political process. He added that everyone concurs with the concept of taxing their enemies and supporting their allies.