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Tax Foundation report: Simpler tax code means billions of dollars saved in time

August 8, 2018

The GOP’s tax cuts could save Americans billions of dollars by reducing the number of hours they spend calculating and filing their returns, according to a report released Tuesday.

Millions of people will see less paperwork, amounting to as much as $5.4 billion in time-cost savings nationwide, the Tax Foundation estimated.

“For the vast majority of taxpayers, the tax code has been simplified,” said Erica York, who wrote the report.

A simpler code and the ability for some filers to do their taxes on a form the size of a postcard was a major selling point for Republicans, who powered the tax code overhaul through Congress late last year.

The law nearly doubled the standard deduction, raising it to $12,000 for individuals and $24,000 for couples, making it more attractive for taxpayers to avoid the massive paperwork that comes from itemizing. Ms. York predicts that just 12 percent of taxpayers will still itemize, down from about 30 percent now.

The law also increases exemption amounts and income thresholds for people who pay the alternative minimum tax, or AMT changes that are expected to reduce the number of AMT filings from about 10 million to 1 million, the report said.

Calculating the AMT is a lengthy process that essentially pushes higher-income Americans to calculate their taxes twice, once under the regular rates and again under a higher rate then pay the higher amount.

The tax law’s AMT changes will cut 135 million hours from taxpayers’ collective filing time, saving $4.6 billion in compliance costs, the Tax Foundation figured.

“A simpler tax filing process translates to millions fewer hours wasted by households complying with the individual income tax, which will translate into real cost savings,” Ms. York and Alex Muresianu wrote in the report.

The study calculated the time-cost savings by looking at the hours freed up, then multiplying that by the average hourly employer cost for private-sector workers.

Rep. Kevin Brady, the House’s top tax writer, said the estimated savings are evidence the GOP met its promises.

“With a nearly doubled standard deduction, minimized AMT, and a new postcard-style filing system, millions of hardworking Americans will save time, money, and a whole lot of stress when filing their taxes under our new pro-growth tax code next year,” said Mr. Brady, Texas Republican and chairman of the House Ways and Means Committee.

But there are indications the law has introduced new complexities into the system.

Twenty-one percent of taxpayers, or about 30 million people, will end up writing checks to the federal government during next year’s filing season because their employers withheld too little from their paychecks, according to a recent Government Accountability Office report.

That’s 3 percent more than under the old tax law, the Treasury Department says.

Mr. Brady said the new withholding projections are in line with historical levels, and that people aren’t going to actually see higher taxes because of the withholding issues.

But Democrats had long warned that if the withholding tables weren’t adjusted properly, Americans could mistakenly revel in the higher paychecks they’ve been seeing this year from the tax cuts, only to be socked with an eye-popping bill come April.

Sen. Ron Wyden, the top Democrat on the Finance Committee, said millions of Americans have received “bad advice” from the federal government on how much to withhold.

Mr. Wyden also has cast doubt on claims that taxpayers will see a simplified filing process this year.

He points to a report from Congress’s nonpartisan tax scorekeeper that found the tax law did little to reduce the number of special breaks, or expenditures, as evidence that Republicans fell short on their pledge to simplify things.

“Failing to clean out the junk in our tax code is yet another broken Trump promise,” Mr. Wyden said.

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