December 7, 2017

The Unbearable Weight of the IRS

That the tax code in the United States is complex, burdensome, and opaque is almost axiomatic. While there have been some attempts to measure compliance costs and other costs, the newest release of the RegData project provides real numbers on the regulatory burden the current tax code imposes on Americans. Part 1 of Title 26 of the Code of Federal Regulations (CFR), which contains the regulations pertaining to federal income taxes, is the longest and most restrictive single part in the entire CFR, with about 22 percent more restrictions than the next most restrictive part.

RegData 3.0 is the newest release of the RegData project, which uses custom-made text analysis and machine learning algorithms to identify and quantify various features of regulation. One of these features is regulatory restrictions—words or phrases such as must or shall that are typically used to prohibit or obligate some activity by individuals and businesses. This approach allows us to measure the restrictiveness of regulations. All data from the RegData project are available at RegData.org and the related site, QuantGov.org. In addition, RegData measures the length of regulatory texts by counting the number of words in each part of each title of the CFR.

Title 26 of the CFR contains the regulations of the Internal Revenue Service (IRS). Part 1 of Title 26 comprises IRS regulations pertaining to federal income taxes. These rules concern individuals, trusts, estates, and various types of corporations and partnerships. Part 1 details IRS treatment of these taxable entities, including the procedures for the collection of revenue, the rates at which these entities will be taxed, and the tax credits allowed under current law. Part 1, comprising 20 subgroups and nearly 8,000 sections, has consistently been the largest part within Title 26, which contains 151 total active parts. Currently, Part 1 represents nearly 75 percent of the total number of restrictions and 78 percent of the total number of words in Title 26. With 8,985,439 words and 50,589 restrictions—as seen in the figure below—Part 1 of Title 26 is the longest and most restrictive single part in the entire CFR. Part 63 of Title 40, which covers national air pollution regulation, is the next largest, with 3,032,623 words and 41,573 restrictions.

How long and complex are nine million words of tax-related regulatory text? For context, the King James Version of the Bible contains 792,074 words, which means that Part 1 of Title 26 is almost 11.5 times as long as the Bible itself. According to the IRS, in 2016, the average taxpayer with no business income required nine hours to comply with individual income tax requirements. In the digital age, why does the tax code in a modern, advanced economy force average taxpayers to spend more than an entire business day to file their tax returns, when it could be done in five minutes?