What Does It Cost to Comply with the Tax Code?

Taxpayers are all too familiar with how much they owe in taxes each year. Less appreciated is the burden that goes above and beyond one’s tax obligation: the incredible amount of time that is required each year to comply with our nation’s extremely complicated tax system.

It's been over 30 years now since the last comprehensive reform of the Tax Code. Since then, the number of pages of instructions for the basic Form 1040 have quadrupled. The Code itself is counted at 4 million words. No wonder taxpayers increasingly seek professional help to prepare and file their forms.

The amount of time involved in record-keeping and making sense of the forms and schedules is staggering.  Based on the most current public estimates, taxpayers spent 6.89 billion hours complying with the Tax Code.

We can calculate the value of this opportunity cost by comparing it to the average salary and benefits paid to private-sector workers: an average of $32.76 per hour.  Add in the $34 billion spent each year by taxpayers for out-of-pocket expenses related to preparing and filing taxes, and the net compliance burden of the tax laws is $263 billion.

This amount is larger than the annual revenues of all but one Fortune 500 company, and surpasses the annual GDP of over 150 countries, including Chile, Finland, and Portugal.

Until reforms are passed to simplify both the Tax Code and the administration of tax laws, taxpayers will remain mired in a deeply flawed and horrendously complex system.


Read more about the state of the Tax Code in NTUF Policy Paper 178, Tax Complexity 2017: As the Burden Grows, Taxpayers’ Patience Shrinks.