Think that you're on your own if you want your tax-reform concerns heard in Washington? Well, you're not. Since 1979 there's been an official advocate who has the ear of Congress, regularly making a stink on taxpayers' behalf, aiming for a fairer, simpler, system.
What started as the Office of the Taxpayer Ombudsman was replaced in 1996 by the Office of the Taxpayer Advocate. Since 2001 it has been headed by Nina Olson -- "the voice of the taxpayer."
Every year Olson presents a report to Congress, outlining areas in the tax code that are in urgent need of reform. It might not come as a surprise that Congress hasn't rushed to implement all suggested tax reform changes immediately. Thus, many items are repeated from year to year.
Here are some of the key concerns raised by the taxpayer advocate in the just-released 2012 report:
Tax-Code Complexity and Cost of Compliance
The tax code has grown over the years to what now encompasses almost four million words. It's so complex that 59 percent of individuals pay tax pros to prepare their returns (and another 30 percent use tax-prep software). This is an extra cost borne by taxpayers. The cost is not just financial -- individuals and businesses spend more than 6 billion hours each year on taxes.
Olson cites this as the biggest tax-reform target we face, explaining: "The existing tax code ... obscures comprehension, leaving many taxpayers unaware how their taxes are computed and what rate of tax they pay; it facilitates tax avoidance by enabling sophisticated taxpayers to reduce their tax liabilities and provides criminals with opportunities to commit tax fraud; and it undermines trust in the system by creating an impression that many taxpayers are not compliant, thereby reducing the incentives that honest taxpayers feel to comply."
Underfunding the IRS
According to Olson, the IRS collected $2.5 trillion in fiscal 2012, on a budget of less than $12 billion -- that's a 214:1 average return-on-investment. Yet this money-generating entity has been facing budget cuts, not increases.
As a nation with significant financial troubles, taking money away from an entity that brings in desperately needed money seems counterintuitive. Olson writes: "Last year, the IRS Commissioner estimated in a letter to Congress that proposed reductions in the IRS budget would case tax collections to fall seven times as much." The flip side of that coin? Hire more IRS workers, and collect far more in tax revenue than you spent hiring them. As Olson states, "No business would fail to fund a unit that, on average, brought in $7 for every dollar spent."
Prolonged Problems Helping Victims of Identity Theft
Not only is identity theft a big and growing problem for many Americans, but when their finances are hijacked, it can also cause massive headaches with taxes.
Olson says that the IRS isn't responding with sufficient urgency to the problem. She points out that with cases of tax-related identity theft rising some 650 percent since fiscal 2008, the average victim is having to wait more than six months for IRS resolutions to problems (such as receiving refunds due). This is a very serious hardship for lower-income taxpayers in particular, where a delayed refund of several thousand dollars is critically needed. In addition, less money for the IRS means fewer problems solved and questions answered, and longer waits.
The Alternative Minimum Tax was enacted in 1969 to prevent high-income taxpayers from avoiding taxation. It's not working well, though, as about 7,000 millionaires in 2011 paid no income tax at all. Meanwhile, the AMT is very complicated, and due to some of its peculiarities, it can ensnare middle-income taxpayers.
As part of the fiscal cliff deal, Congress finally agreed to a permanent "patch" for the AMT, indexing it for inflation so that it won't hit most of those middle class taxpayers, now or ever. But Olson's recommendation is far simpler: Repeal it.
See What Your Advocate Is Fighting For
It's easy to be discouraged about the effectiveness of government, so take some comfort in your Taxpayer Advocate, who's fighting the good fight for individuals. If you'd like to learn more, read the report, or check out a nifty set of infographics summarizing it.