(Alexandria, VA) – If time is money, then our complex tax system is already costing Americans plenty of both, and the price tag is about to get a lot worse. By the most recent estimates, the complexity of the Tax Code costs individual taxpayers $115.4 billion, thanks to the time burden and expenses of software, preparer fees, and other materials. The total time burden, including corporate filings, is 7.64 billion hours at a cost of $227.1 billion. These and other sobering results come from the 362,000-member National Taxpayers Union’s (NTU’s) 13th annual study of tax complexity.
“As the White House and Congress continue to debate how heavy the burden of paying taxes should be for Americans, they must pay more attention to how heavy the burden of filing taxes can be,” said NTU Senior Counselor and study author David Keating. “NTU’s Taxing Trend Report shows that complexity is at the root of many other problems surrounding our tax system, including the tremendous damage it has done to our economy and our civil liberties.”
NTU has conducted comprehensive examinations of Tax Code complexity since 1999, providing historical trends in the compliance burden the IRS places on Americans. NTU’s 2011 findings include:
- Paperwork burdens imposed by the Department of the Treasury, most of them attributable to personal and business income tax forms, cost Americans 7.64 billion hours according to the most recent available data, equating to about 3.82 million people working full-time with two weeks’ vacation each year. This “unseen army” would, if it were officially classified as an occupation, rank second-largest in the country, right behind that of “retail salesperson” and is larger than the workforces of IBM, McDonald’s, Target, Wal-Mart, and UPS combined!
- This gigantic amount of time would add up to $227.1 billion, when measured against the Bureau of Labor Statistics’ average hourly employer cost for civilian workers. When accounting for the time component for individuals only, plus their costs for things like postage, tax software, and tax preparers, the result is staggering: $115.4 billion for the non-corporate taxpaying population alone.
- The government’s most current version of the Tax Code tops out at 3,837,105 words, an increase of more than 52,000 words since NTU’s 2010 study. This does not include any of the tax-law changes enacted through the health care legislation last year.
- The average compliance time for those using any of the Form 1040 series is 19 hours, up from 17.3 hours last year. The average out-of-pocket cost for filing these forms is $250, up 10 percent. Yet, the range of time and money involved with these forms can vary dramatically. For example, small businesses using Form 1040 to declare their profits face a time burden of 34 hours and a cost of $430. These are minimums, since most firms spend much more than this on year-round tax planning.
- The instruction book alone for the 1040 “long” form continues to live up to its name, consisting of 179 pages (five more than last year’s publication). But the “short form” is no slouch either: the 1040A instructions total 87 pages, more than the “long” form’s entire booklet from 1995!
Keating explained that a complicated Tax Code has a detrimental impact on the U.S.’s business position in the world as well. Our country places 66th worldwide (out of 183 countries surveyed) for hours spent on tax compliance by a typical smaller corporation, according to a 2011 study jointly published by PricewaterhouseCoopers and the World Bank Group. The U.S.’s rank for total tax rate was much worse – 124th out of 183, dropping another six places from 2010 and 32 places since 2009.
Moreover, Keating contended, tax complexity will soon get much more nettlesome for businesses and individuals, owing to several factors. The Alternative Minimum Tax, held at bay by temporary “patches” enacted by Congress, continues to threaten tens of millions of unsuspecting taxpayers with an entire second set of tax laws to worry about. Meanwhile, the temporary extension of the 2001 and 2003 income tax relief provisions – and a death tax structure that will change again in 2013 – are already causing tax-planning headaches. For these reasons, Keating noted, recent interest from Executive and Legislative Branch officials in revisiting the tax laws is especially important.
“Just as America is confronting a crisis from unsustainable entitlement programs, policymakers must face facts about the unsustainable Tax Code they’ve created,” Keating concluded. “For the sake of our future prosperity, competitiveness, and system of government, tax simplification is imperative.”
NTU is a nonpartisan, nonprofit citizen organization founded in 1969 to work for lower taxes, smaller government, and economic freedom at all levels. Note: NTU Policy Paper 128, A Taxing Trend: The Rise in Complexity, Forms, and Paperwork Burdens, is available online and in PDF format.