Tax Complexity

The revelation that IRS Commissioner Douglas Shulman doesn’t do his own tax return is getting a lot of snickers. But the truth is that he would be a fool to do his own taxes for the same reason that doctors don’t operate on family members and lawyers don’t defend themselves in court. It’s too easy to make a mistake—as Treasury Secretary Tim Geithner did when he prepared his own return. When one is too close to a situation, as most of us are to our own finances, we can’t always see it objectively and it’s usually better for someone else to evaluate it dispassionately.

There are other reasons as well why even a tax expert wouldn’t prepare his own return. Most tax experts are specialists—they may know everything about corporate taxation or trusts and estates, but don’t necessarily know whether or not they can deduct the cost of a home office. Those that prepare returns for a living are better at doing so and can do the job more quickly. They are also more up to date on changes in the law, regulations and IRS procedures. So it’s really just a matter of the division of labor—it’s the same reason why everyone pays people to do things they could do themselves if they wanted to, whether it’s changing the oil in one’s car or having a cleaner iron one’s shirts.

Perhaps it would be nice if we lived in a world where we could all prepare our own tax returns, but the trend in taxation has been toward greater and greater complexity for many years under both political parties and there’s no reason to think that is ever going to change. The best we can hope for is that technology will keep the whole system from crashing down. Software programs like TurboTax make complex mathematical calculations easier and take much of the drudgery out of tax preparation. The idea that we will ever go back to a time when the entire tax code would fit on a four-page tax return, as was the case in 1913, is a pipe dream.

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