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Tax Compliance Will Cost Americans $409 Billion in 2016

Jun 22nd 2016
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Accountants and tax preparers may not be thrilled with the Tax Foundation’s new report about the costs of tax compliance, but business owners and legislators seeking to revamp the tax code almost certainly will.

And, OK, maybe the bean counters will, too.

The Compliance Costs of IRS Regulations by Tax Foundation President Scott Hodge reveals that Americans will spend more than 8.9 billion hours and $409 billion in complying with tax-filing rules this year. That’s equal to almost 4.3 million full-time workers doing only tax returns, the report notes. Most of those 8.9 billion hours will be spent on business (2.8 billion hours) and individual income (2.6 billion hours) tax returns. (The next two largest time-consumers are S Corporation returns at 890 million hours and Form 4562, Depreciation and Amortization, at 449 million hours.)

Less than four years ago, the National Taxpayer Advocate reported to Congress that the grand total in time spent was 6.1 billion hours.

And then there’s the sheer size of the tax code. In 1955, the code had 409,000 words. It’s now at 2.4 million words. Adding to that are a 100 years of IRS regulations, which amount to about 7.7 million – give or take a word or two. There’s more: almost 60,000 pages of case law.

So, on to the report’s main point: reform the tax code. “The United States has a high marginal corporate tax rate, a poorly defined tax base, and an out-of-date international tax system,” the report states. “However, one often-overlooked issue in tax reform is complexity.” And tackling the cost of that complexity “should be a priority for lawmakers.”

It’s a matter of economic costs and lost productivity, the report states, citing this example: “A business owner who needs to file a complex tax return each year may hire an accountant or tax lawyer to do it. This tax professional may cost $70,000 a year or more. This is $70,000 that this business owner cannot devote to purchasing equipment or hiring workers. Economists refer to this as an opportunity cost, and it results in lost productivity.”

So, the report concludes, take those 8.9 billion hours and $409 billion spent in complying with it, and the lost productivity computes to more than the gross product of 36 states.

“Time is the most valuable thing we have, and we should not be forced to waste it complying with IRS forms,” Hodge said in a prepared statement. “Congress needs to keep this in mind as they move forward with tax reform over the next year. In addition to fostering economic growth, we need reforms that ease the burden of time on taxpayers. I think that’s something we can all get behind.”

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Brett Layton, CPA
By bltaxes
Jun 27th 2016 16:59

Great article and we all need to read the report. Still self-assessment is better than anything else I can think of. People should realize when the "Government" fills out your return automatically, you have lost all control.

Complexity results from a complicated economy and the legislatures desire for back door tax increases, progressivity, and "fairness". Never mind that rich under the tax code is a lower middle class lifestyle in California or NYC...

Nothing beats active engagement in the legislative process. Most citizens do not take the time. Look in the mirror and blame yourself or fight for a change.

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