April 15 was supposed to be Tax Day for the millions of individuals and businesses who file income taxes, but it has been delayed until July 15 due to the coronavirus. Tax Day normally causes frustration for taxpayers as they spend their valuable time trying to figure out all the deductions they can take and how to minimize their tax burden. Many give up altogether and spend their hard-earned money on a tax preparer.
It will take individuals less time to do their taxes this year, however, than in years past thanks to the Tax Cuts and Jobs Act.
Contrary to some claims, the tax law was not just a tax cut for corporations and the 1%. The law cut taxes for 9 out of 10 wage earners and simplified the act of filing and paying. A new study by the National Taxpayers Union confirmed that the total compliance burden of the individual tax code decreased by 138 million hours this year compared with the year before the TCJA’s passage. This means we all now have more time to spend with family or other leisure activities.
The complexity of the tax code is a major drag on the U.S. economy because it diverts people’s time and money from productive or leisure activities, such as working another shift or finishing the last two episodes of Tiger King, to the unproductive and unenjoyable activity of reading government forms and figuring out what you owe to Uncle Sam.
But the TCJA made the tax code simpler by doubling the standard deduction and eliminating or capping complex deductions. In the first year after the TCJA was passed, the number of taxpayers who itemized fell from 46 million households to 17 million, according to IRS data. More people are taking the simple standard deduction now instead of doing the complicated itemizing process because of the TCJA, and people are seeing the benefits of this.
Though it took the average person 15 hours to complete the 1040 form before the TCJA was passed, the IRS estimated that it would take the average individual only 11 hours to complete this year’s form — a 26% decrease.
The tax code is now simpler for all tax filers, despite false claims that the “Trump tax cuts” only benefited rich corporations and the 1%. Future tax reform efforts should build on the TCJA’s reforms by making the tax code even simpler by eliminating more deductions and lowering tax rates.
Claims that the tax law only helped corporations are also odd because the law, unfortunately, made the tax code more burdensome for businesses.
Because of the law’s complex international tax provisions, special rules for certain pass-through businesses, and other provisions, the IRS has released 1,025 pages of regulations and guidance since the law was passed. For context, the entire TCJA was only 186 pages long. The NTU estimates that tax compliance burdens for businesses have increased by more than $21 billion each year because of the TCJA.
The complexity of the business tax code translates to lost economic growth since businesses have to pay tax accountants more to do their taxes as they sort through all the new complicated tax provisions. This is money that could have been used to invest in new equipment, machinery, or to hire new employees. Businesses may also delay investment and hiring decisions if they do not know how a certain tax provision affects them or feel that a provision might be changed in future years. The result of these compliance costs is fewer jobs and lower wages for workers due to lost productivity.
While quarantine may have delayed Tax Day for millions, we should be thankful for the strides lawmakers have made in recent years in simplifying part of the tax code. Lawmakers should learn from the successes they had in reforming the individual tax code and consider simplifying the business tax code during the next round of tax reform. This would help struggling businesses and ease a major burden off of them and the entire economy as we look forward to an economic recovery.
Travis Nix is a writer and a student of tax law at Georgetown.
