(Alexandria, VA) – Elected officials brag about cutting the burden of paying federal income taxes, but they sure haven't cut the costs of filling out tax forms, maintaining records, and keeping up with ever-changing laws. According to the 362,000-member National Taxpayers Union's (NTU) 12th annual study of tax complexity trends, American families and businesses spend over 7.5 billion hours complying with federal tax requirements, while individuals pay over $100 billion for their time and out-of-pocket filing expenses.
"The findings in NTU's Taxing Trend report should give taxpayers pause over how inconsistent, inefficient, and nearly incomprehensible federal income tax laws have become," NTU Senior Counselor and study author David Keating stated. "The figures that pop up from these pages like red flags should likewise encourage policymakers to ask themselves one question: How much more complexity can they keep inflicting on the tax system before it becomes completely unmanageable?"
NTU has conducted comprehensive examinations of Tax Code complexity since 1999, providing historical trends in the burden on Americans to comply with IRS demands. NTU's 2010 findings include:
- Treasury Department paperwork, over 90 percent of which consists of personal and business income tax forms, imposes a burden of 7.6 to 7.8 billion hours on Americans. That's the equivalent of some 3.7 million employees working 40-hour weeks year-round without any vacation – more than are employed at the five biggest private companies.
- Individual (non-business) taxpayers will spend about 2.43 billion hours complying with income tax laws this year. The value of this time is worth an incredible $71.4 billion. They'll also spend a lot of money: an estimated $31.5 billion for tax software, tax preparers, postage, and other direct out-of-pocket costs. The total compliance tab, for this one part of the taxpaying public: $103 billion.
- The instruction book alone for the 1040 "long" form certainly lives up to its name, consisting of 174 pages. That's 13 pages more than the previous year's publication.
- Today's 1040A "short" form, at 49 lines, has double the number of lines on the 1945 version of the standard 1040 tax return. The short form's instructions total 92 pages, more than the long form's booklet from 1995!
- A search of the most recently published Tax Code, from January 5, 2009, shows a total of 3,784,745 words. Tax changes from 2009 and 2010 have yet to be inserted in the government's official Tax Code, but according to Keating, "it's a safe bet the next publication will have thousands more words explaining the new taxes that were part of the recently passed health care reform bill."
- Complexity is about to get a lot worse, with the potential return of the federal estate and inheritance tax in 2011, a rising threat from the Alternative Minimum Tax (which could trap 30 million Americans), and at least 141 expiring tax law provisions from 2009 and 2010 that Congress may tinker with soon.
Keating noted that large and small businesses alike have an especially tough time meeting the dictates of the Tax Code. Even in a recession, the paperwork doesn't seem to diminish. The United States now ranks an embarrassing 69th worldwide (out of 183 countries surveyed) for time spent complying with corporate tax filings, according to a 2010 study jointly published by PricewaterhouseCoopers and the World Bank Group. Tellingly, the U.S. did even worse when ranked by total tax rate alone – 118th out of 183, dropping from 92nd out of 181 last year. A total of 45 countries made corporate taxpaying easier last year by cutting rates or streamlining filing processes. America was not among them.
"Given the huge amount of expense our overcomplicated tax system imposes on us, fundamental tax reform would be one of the best ways imaginable to stimulate our economy without plunging the country further into debt," Keating concluded. "Replacing the current mess with a flat tax or national retail sales tax would not only leave our wallets better off, it would also help to protect our civil liberties from an ever-more-intrusive IRS."
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 127, A Taxing Trend: The Rise in Complexity, Forms, and Paperwork Burdens, is available online and in PDF format.