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The Honolulu Advertiser
Posted on: Thursday, April 15, 2004

Tax forms more complex, study shows

 •  Still haven't filed?
 •  Paying more taxes? You've got company

Advertiser Staff

The Honolulu IRS office is among the many places taxpayers can turn for help with their returns, which are growing increasingly complicated. The government estimates the time required for a typical itemized return at almost 29 hours.

Jeff Widener • The Honolulu Advertiser

WASHINGTON — Taxpayers working feverishly to meet today's filing deadline can take some comfort in knowing they are not alone when it comes to scratching their heads over this year's forms. Tax returns are getting more complicated.

The government estimates that the average taxpayer filing a typical tax return with itemized deductions and income from interest, capital gains and dividends, has to spend 42 minutes more than last year doing the math and paperwork.

The total estimated time to finish these common forms is 28 hours and 30 minutes.

It is not only frustrating, but economically counterproductive, said David Keating senior counselor for the National Taxpayers Union and author of a new study on tax complexity.

"This is something that hobbles the nation's productivity because we have a lot of very talented people filling out paperwork," he said. "It's a real deadweight in our economy."

Even the simplest Form 1040EZ tax return takes 3 hours and 43 minutes to complete.

Some of this year's paperwork burden stems from changes in the taxpayers' favor, such as new laws that reduced the rates on capital gains and dividends and increased the child tax credit. The Internal Revenue Service reported yesterday that the average tax refund increased 5 percent this year to $2,090.

Occasionally, taxpayers find they have to complete a certain form, only to discover their work leads to a dead end.

To test for alternative minimum tax liability, for example, the average taxpayer can spend 3 hours filling out a worksheet only to find out no extra tax is owed. The alternative minimum tax prevents wealthy taxpayers from sheltering too much income. Increasingly, however, it affects more middle-income families.

The paperwork estimates do not capture time spent in tax planning while making financial decisions, Keating noted.

"It's a year-round worry you've done something the tax stupid way, not the tax smart way," he said.

To cope with the burden, taxpayers turn in droves to a professional or a software program to do the work, the National Taxpayers Union study said. More than 88 percent of taxpayers have used a paid professional or purchased tax software so far this year.

The popularity of tax software shows up in IRS statistics that measure a 20 percent increase this year in taxpayers using home computers to file electronically.

Even the professionals rely on software.

Kathy Burlison, director of tax implementation at H&R Block, said the software is particularly helpful with this year's capital gains tax calculations. Capital gains can be taxed at multiple rates this year, depending when the asset was bought and sold.

"We are all grateful for good software. It's not a calculation we'd want to be making over and over on our own," Burlison said.

H&R Block wrote its own software program to break through the complexity in education tax credits and deductions. The education calculator prevents taxpayers or tax professionals from having to fill out their tax return as many as four different ways to find out which yields the lowest taxes.

Joseph Anthony, an enrolled agent who prepares tax returns in Portland, Ore., said he does his by hand every year as an educational exercise before turning to the computer.

He said he has seen the complexity rise with each of President Bush's tax cuts, and he blames the firepower of modern computers for making the complications possible. Tax cuts passed during Bush's administration start and stop, phase in and phase out, and apply to only parts of the taxpaying population.

"I blame Intel partly for the complexity of tax returns," Anthony said.

• • •

Still haven't filed?

To file an extension:

  • You can file for a four-month extension until midnight today by using Form 4868, which is for individuals and married couples. The form can be downloaded from www.irs.gov or you can pick up the form at any local IRS office and some public libraries as well.
  • You could also call in an extension at (888) 796-1074 through today. Make sure to fill out the form first and have banking information handy if you're going to pay taxes electronically.

To drop off tax returns:

  • The Honolulu IRS office does not offer curbside service for federal returns, but tax returns can be dropped off late today at some post offices, including the downtown location at 335 Merchant St., and still receive an April 15 postmark. Call the U.S. Postal Service automated line at (800) 275-8777 for details.
  • State workers will accept tax returns curbside on both Punchbowl and Halekauwila Streets from 5 p.m. to midnight April 20.

• • •

Paying more taxes? You've got company

WASHINGTON — Half of Americans say the overall taxes they pay — federal, state and local — have gone up during the last three years, more than triple the number who feel they've gone down, an Associated Press poll found.

"Every time you turn around, there's a new gasoline tax, more property taxes, a library tax — because they don't have enough money," said Tom Artley, 52, a supervisor at a manufacturing plant in Williams-

port, Pa. He was referring to the increasing financial problems faced by many cities and states.

"I'd like to retire in the next five years," Artley said. "It's scary for people like me who are going to be living on a fixed income."

The perception that taxes have not gone down may cause many people to have a lukewarm attitude toward tax cuts.

By almost a 2-1 margin, Americans prefer balancing the nation's budget to cutting taxes, according to the poll conducted for the AP by Ipsos-Public Affairs. Sixty-one percent chose balancing the budget while 36 percent chose tax cuts when they were asked which was more important.

Many feel their tax burden has been increasing. About half those surveyed, 49 percent, said their overall tax burden — including federal, state and local taxes — had gone up over the past three years. That's almost four times the 13 percent in the poll who said their overall taxes went down.

Even when it comes to federal taxes, most of the public don't feel those taxes have gone down over the past three years. Twenty-five percent in the poll said their federal taxes had gone up during that time; 43 percent said they had stayed the same.

Among those most likely to say their federal taxes have gone down are investors and the wealthy.

Both the conservative-leaning Tax Foundation and the liberal-leaning Center on Budget and Policy Priorities have concluded that the federal tax burden is easing for the average family. The Tax Foundation suggests that federal income taxes are the lowest for Americans in almost four decades.

Yet the perception of many that they're paying more overall is no surprise to Iris Lav, deputy director of the Center on Budget and Policy Priorities.

"Federal tax cuts largely benefit higher-income people," Lav said. "In the meantime, people face tax increases on sales, cigarettes, gasoline."

For 73-year-old Bonnie Shoemaker of Fort Morgan, Colo., the choice between tax cuts and balancing the budget is a tough one.

"We all need money to live on," she said. "But I think we ought to concentrate on balancing the budget."

Opinion was mixed on whether the wealthiest Americans should have to give up the tax cuts they've gotten over the past three years. Just over half, 53 percent, said they want the elimination of recent tax cuts for people who earn more than $200,000 a year, while 45 percent said they want those cuts to remain in place.

As for their views on presidential candidates, more poll respondents thought Democrat John Kerry would raise taxes than those who believed that President Bush would — 51 percent to 34 percent. Bush has been pushing cuts since the 2000 campaign.

Some see tax cuts as the best way to improve the economy and — eventually — to balance the budget.

"If I had to choose, I would pick cutting taxes," said Marta Mitzenmacher of Miami, a budget director for a community college. "I think the more money I have in my pocket, the more that circulates in the economy, and that puts more money back into government."

The AP-Ipsos poll of 1,001 adults was taken March 19-21 and has a margin of sampling error of plus or minus 3 percentage points.

— Will Lester, Associated Press