US Sales Tax: Key Facts and Figures

Introduction

Imagine if filing your taxes was as quick and easy as checking your email. In Estonia, that's how easy. It is that simple—so much so that the majority can submit their taxes in just five minutes, free of charge. Every citizen is required to have an online tax account where all information is prefilled, making the process of tax season painless.

Now, take a look at the US for comparison, considering factors like the US sales tax' which further complicates the situation. Things are far from simple with the tax experience here. On average, Americans spend around 13 hours preparing their tax returns and around $240 on tax preparation services. And if you need to call the IRS for assistance, you might wait for 22 minutes or more—if you can get through at all.

So, why is the US tax system so complex? What can make it such a problem even to the IRS and the taxpayer alike? Let’s dive into the reasons behind the US tax system's complexity and explore the difficulties it creates for everyone involved.

The US Tax System | More Than Just Collection

The US tax system is designed to do more than just gather revenue. Congress uses it as a means of implementing various economic and social policies. For example, tax credits and deductions are provided to encourage citizens to save for retirement or to invest in clean energy. Though such benefits sound great, in turn, it also makes the tax code a bit complex.

According to Erin Collins, the National Taxpayer Advocate, these tax benefits, on the one hand, are enacted to help people and promote social good, but on the other hand, they complicate the system. Further, all these credits, deductions, and exclusions make the tax code very hard for any taxpayer and tax preparer to get through.

A Brief History of US Taxes

The history of the US tax system reflects its complexity. The concept of Income tax was first imposed in 1862 during President Abraham Lincoln's time, but it didn't last that long. The first federal income tax was rapidly repealed.

It wasn’t until 1913, with the ratification of the 16th Amendment, that Congress gained the power to levy income taxes consistently. This marked the beginning of the modern tax system and set the stage for its evolving complexity.

Over the decades, different administrations have altered tax policies, adding layers of complexity. For example:

• 1980s: President Ronald Reagan’s Economic Recovery Tax Act lowered individual tax rates.
• 1990s: President Bill Clinton increased the top tax rate and expanded the earned income tax credit.
• 2017: Under President Donald Trump, the Tax Cuts and Jobs Act reduced tax rates and increased the standard deduction.
• 2022: Under President Joe Biden, the Inflation Reduction Act provided new subsidies for clean energy.

Each of these changes added another layer to the tax code, making it more complex.

The Impact of Lobbying

Lobbying plays a huge role in the complexity of the tax code. Various interest groups push for the preservation of specific tax deductions and credits that benefit their industries. For instance, the powerful real estate lobby has managed to protect the mortgage interest deduction from elimination for years.

These lobbying efforts turn the tax code into a patchwork of policies, adding to the us tax system's complexity and making it more complicated, further tangled by the varying regulations around us sales tax. Tax software companies, which provide tools to help people navigate these complexities, benefit from this intricate system.

The IRS: Balancing Act Between Complexity and Resources

The role of the IRS in managing a complex tax system with limited resources is rather tough. Unlike Estonia's simple tax service, the IRS has to bear a broad spectrum of tasks, including:

• Collecting Taxes: Ensuring that individuals and businesses pay their fair share.
• Enforcing Tax Laws: Investigating and addressing cases of tax evasion.
• Providing Social Benefits: Distributing stimulus payments and other benefits.
• Managing Temporary Tax Provisions: Handling new and often complex tax rules introduced during different administrations.

The IRS’s broad responsibilities make it difficult for the agency to provide timely and efficient assistance. The newly enacted Inflation Reduction Act has provided $80 billion in new funding to the IRS to enhance its service and efficiency. However, this additional funding may not simplify the tax code itself.

Efforts to Simplify the Tax Code

Despite ongoing efforts to reform and simplify the tax code, achieving significant change has proven challenging. Here are some reasons why:

• Resistance from Interest Groups: There is strong resistance from powerful lobbyists to remove specific tax benefits and deductions. For example, the real estate industry has saved the mortgage interest deduction from removal many times.
• Conflicting Policy Goals: There are several policy goals that the tax code attempts to achieve simultaneously. This balancing often leads to a more complex system.
• Incremental Reforms: Some states and multistate organizations have implemented partial reforms to address specific issues, like remote sales tax compliance. However, no comprehensive approach has been fully embraced.

Efforts to simplify the tax code often face hurdles due to the conflicting interests of various stakeholders and the complexity of integrating multiple policy goals into a single, cohesive system.

How Kintsugi Can Help

At the core of all this complexity, businesses and people are reaching out for specialized tools to make tax management easier. One of these tools is Kintsugi, an all-in-one platform to confer ease in tax compliance and management.

Kintsugi’s platform offers an all-in-one solution for handling various tax-related tasks, making it easier to manage US sales tax obligations and other tax requirements. By integrating Kintsugi, users can automate tax calculations, stay updated on regulatory changes, and reduce the risk of errors and compliance issues.

Tools like Kintsugi only gain value over time, with any enhancements to tax regulations. They keep the complex tax system in order and make compliance feel easy for users.

Conclusion

The complicated system created by the multifaceted goals of taxes in the United States, coupled with the US tax system complexity, adds to the many influences of lobbying and the broad responsibilities of the IRS. While continuing the development of the IRS's capabilities and simplification of some of the processes of filing, creating a simple and efficient tax code is a hard task.

Factors such as these that explain the complexity help in understanding the dilemma of not only the taxpayer but also the IRS. Additionally, because of constant discussions concerning reforms in tax, one will have to bear in mind the stated factors and try to seek solutions that balance between effectiveness and the multiple goals of the tax system. Kintsugi is of use in getting the backing to sail through the tax complex world and make compliance manageable.