Survey: Americans Believe Tax System is in Need of an Overhaulby
It probably comes as no surprise that the majority of Americans are somewhat miffed at the nation’s tax system, but it’s the manner in which the tax system frustrates them that may surprise you.
According to a recent Pew Research Center survey, released on March 19, the public sees the nation’s tax system as deeply flawed: 59 percent say “there is so much wrong with the federal tax system that Congress should completely change it.” Just 38 percent think the system “works pretty well” and requires “only minor changes.” These opinions have changed little since the last time Pew Research Center conducted this survey in December 2011.
The survey also found, however, that Americans’ top complaint about the tax system isn’t the amount they are paying, but “rather the feeling that some corporations and the wealthy do not pay their fair share.”
The survey found that 64 percent of Americans are “bothered a lot” by the feeling that some corporations do not pay their fair share, and 61 percent say they are “bothered a lot” by the feeling that some wealthy people don’t pay their fair share.
Just 27 percent of those surveyed, however, say they are “bothered a lot” by the amount they pay in taxes.
In other views of the tax system, the national survey by the Pew Research Center – conducted Feb. 18 through Feb. 22 among 1,504 adults, 18 years of age or older – found that 44 percent of those surveyed say they are “bothered a lot” by the complexity of the system, while just 20 percent are “bothered a great deal” by the feeling that some poor people are not paying their fair share of taxes.
When asked what bothers them most, those who cited multiple frustrations with the tax system agreed that “a similar hierarchy of concerns is evident,” according to the Pew Research Center. About a quarter of the public (28 percent) say they are most bothered by the feeling that corporations do not pay their fair share, and 25 percent say the same about wealthy people. Fewer (19 percent) point to the complexity of the tax system, while much smaller percentages cite the amount they pay in taxes (7 percent) and the feeling that the poor don’t pay their fair share (4 percent).
About half (53 percent) say they pay about the right amount of taxes, considering what they get from the federal government; fewer (40 percent) feel like they pay more than their fair share of taxes. Just 4 percent say they pay less than their fair share of taxes. These views have changed little since 2011.
The survey found that one factor has changed over the past few years: the widening partisan gap in the public’s attitudes about the federal tax system. Today, survey respondents who are Republicans are 20 percent more likely than those who are Democrats to say they are paying more than their fair share of taxes (50 percent versus 30 percent). In the 2011 survey, nearly identical percentages from the two camps – 37 percent of Republicans and 38 percent of Democrats – said they were paying more than their fair share.
While there is substantial support for Congress completely overhauling the federal tax system, Americans remain divided over the overall fairness of the current tax system, according to the Pew Research Center. Only 4 percent say it is “very fair,” while nearly half (46 percent) view it as “moderately fair.” A nearly equal amount of people say the tax system is “not too fair,” or “not fair at all.” These views have also changed little since 2011.
Tax Code Complexity is a Hot-Button Issue
The American public isn’t the only group bothered by the complexity of the federal tax code this tax season.
In March, the American Institute of CPAs (AICPA) submitted suggestions to the Senate Finance Committee Working Group on Individual Income Tax that would simplify some areas of the tax code that individual taxpayers find the most difficult to understand. The AICPA also recommended provisions to combat identity theft and tax fraud.
The AICPA’s suggestions concentrated on five key areas:
- Identity theft and tax fraud.
- Simplified income tax rate structure.
- Education incentives.
- Relief for missed elections (Section 9100 relief).
- "Kiddie tax" rules.
“We understand the challenges that Congress faces as it tackles the complex issues inherent in drafting tax legislation and note that both taxpayers and tax practitioners are interested in, and need, tax simplification,” Troy Lewis, CPA, CGMA, chairman of the AICPA Tax Executive Committee, wrote in a letter to lawmakers. “Compliance burdens for individual taxpayers are too heavy, both in terms of time required and out-of-pocket cost.”
In his practice, Howard M. Rosen, CPA, JD, AEP, worldwide chairman of BKR International, a global public accounting association, and principal of St. Louis-based CPA firm Conner Ash PC, said he regularly hears two tax system complaints from clients.
First, Rosen explained, people do not understand the net investment income tax on portfolio income. They want to know why some rent may be subject to the tax and why other rent is not. They also want to know why the income from one partnership is exempt from the net investment income tax but not the income from a similar partnership.
Under Obamacare, a 3.8 percent Medicare surtax applies to the lesser of a taxpayer's net investment income or the excess above the modified adjusted gross income thresholds of $200,000 for single filers and $250,000 for joint filers.
Traditional portfolio income, such as interest, dividends, annuity income, royalties, and certain types of rental activities, are subject to the tax.
“This tax, meant in part to pay for Obamacare, has people confused and upset that they must pay an additional tax on their investment income,” Rosen said. “We spend a considerable amount of time explaining this to our clients, as well as ways to mitigate the tax cost.”
Rosen also regularly answers concerns from clients about the overall complexity of their returns, especially those who invest in publicly traded partnerships.
“From a tax-reporting perspective, these investments are not understood by those who sell them or by those who buy them,” Rosen said.
Maureen Schwartz, executive director of BKR International, said while complaints about who is “paying their fair share” are simply a natural response to paying taxes, what is “most important” for firms and CPAs to remember during tax time is how much their clients look to them for trustworthy guidance.
“Firms and CPAs need to explain the system to clients so they feel confident about doing things correctly – especially as they operate in or interact with other countries,” Schwartz said. “Taxpayers rely on their CPAs for sound advice and for keeping it simple even when it isn’t.”
Deanna Arteaga is a professional freelance writer and public relations specialist who for the past six years has covered CPA industry trends for AccountingWEB. She also writes about CPA firm marketing, higher education and professional development for CPAs, and workplace trends in the accounting profession. She has more than 20 years...