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Tax disparities reflect complexity of tax code

One of our themes in this blog is that the federal tax code is far too complicated.

There are many ways in which this reality manifests itself. As we noted in our January 8 post, one of the reasons that the IRS sends out so many notices seeking clarification from taxpayers is that the tax code is so often unclear in the first place.

In today's post, we will discuss another example of the code's peculiar complexities. We will do this by taking note of a recent report about disparities in federal tax bills between taxpayers with similar income.

The Tax Institute of H&R Block compared the federal income tax rates for taxpayers with the same overall income, but with two different profiles.

One profile was a single person with no children. The other was a dual-earner married couple with two dependent children.

The study was based on the premise that both the single person and the married couple had $100,000 in income in 2013. To allow for geographical variability, the Tax Institute did its analysis in three different cities across the country.

Even allowing for geographical differences, the study showed a big gap between what the married couple with $100,000 in income pays compared to a single person with the same income.

In all three of the cities in the study, the single person paid between three and four times as much as the married couple with kids. The exact disparity varied by city, because state and local taxes affect the amount of federal tax people pay.

A study like this certainly shows how the child tax credit and other tax breaks for families with children can influence the amount of tax they pay.

More broadly, however, it also shows how tax laws reward some activities over others. The policies that underlie this may not always be explicitly stated, but their effects are real.

And all of these provisions add to the complexity of the tax code, making compliance more and more of a burden for taxpayers. The complexity also increases the chances for tax disputes.

Source: CNNMoney, "Married with kids vs. singles: Who pays higher taxes?" Jeanne Sahadi, April 25, 2014

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