This testimony discusses the complexity of tax laws and the compliance burden this complexity places on taxpayers. GAO focuses on employment taxes--federal income tax withholding, federal Social Security and Medicare taxes, federal unemployment tax, and state and local employment taxes. GAO examines the impact that these employment tax laws and regulations have on small businesses hiring their first employees and all employees thereafter. GAO notes that employment tax compliance can be particularly burdensome to employers because of multiple federal, state, and local taxes. Each tax generally requires its own unique set of rules and regulations, and each has its own exceptions to these rules and regulations, making compliance difficult for employers. These complexities were not a product of happenstance but rather reflect the various trade-offs that have been made to address a host of tax policy issues. These trade-offs include considerations as to the type of tax imposed, the types of compensation to be socially encouraged, and the fiscal requirements of individual government units. Respondents to an earlier GAO survey described characteristics of especially troublesome tax provisions--ambiguity, frequent changes, expiration clauses, and layers of federal and state regulation. Because various employment tax provisions include some or all of these same characteristics, they present a microcosm of the most burdensome aspects of tax regulation reported by those businesses.

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