Americans Suffer as Tax-Law Complexity Gets Tougher, Citizen Group's Annual Study Finds

(Alexandria, VA) -- Americans struggling to finish their tax returns tonight and tomorrow will need a little aspirin and a lot of luck to cope with new filing burdens and increased costs, according to the non-partisan National Taxpayers Union's (NTU's) annual study of tax law complexity trends. Taxpayers using any of the 1040 tax form series will spend an average of 24.2 hours and $207 completing their returns this year, up from 23.3 hours and $179 three years ago.

"The federal income tax system has become so complex that no one outside or even inside the Internal Revenue Service understands it," said NTU Senior Counselor and study author David Keating. "Last year taxpayers were forced to give up half a billion hours more of their time than they did in the year 2000, all because of new IRS paperwork burdens."

The NTU study is the ninth comprehensive examination of Tax Code complexity the group has conducted since 1999, and thus provides long-term data on how citizens have faced increasingly daunting obstacles in the task of complying with IRS demands. In the past few years, however, the IRS has substantially revised its methodology for reporting tax-law compliance burdens, making NTU's research all the more challenging. Among the findings of the study:

  • Americans spent 6.65 billion hours in 2006 complying with the tax laws; the IRS accounts for nearly 4 out of every 5 paperwork burden hours imposed by the entire federal government.
  • Approximately 3.45 billion of those hours were incurred by businesses. The value of this time is $156.5 billion -- an amazing 44 percent of total corporate income taxes collected in 2006!
  • When examining all individual taxpayers, from those who file the simplest 1040EZ to those using the 1040 long form, the average compliance time (not including tax planning or minimization strategies) surged past a full day (24.2 hours), according to the most recent data. However, individual situations varied greatly. According to a 2006 IRS estimate, self-employed taxpayers had to toil for over 80 hours to satisfy filing requirements.
  • Counting expenses for software, tax preparers, postage, etc., along with time, individuals incurred an incredible $102 billion in expenses to meet the IRS's tax-filing rules.
  • Although computers and printers have gained dramatically in capacity over the past 10 years, this efficiency has likely been overwhelmed by complexity. The average fee charged by H&R Block increased roughly 150 percent during that period (unadjusted for inflation), even as the ratio of taxpayers using computers or paid preparers rose from 7 in 10 to 9 in 10.
  • Between the 108th and 109th Congresses, the Joint Committee on Taxation's General Explanation of Tax Legislation went from 593 to 841 pages -- a 42 percent increase.

Keating noted that the Alternative Minimum Tax, a Byzantine scheme that could trap over 30 million taxpayers by 2010, could make compliance burdens much worse before they get better.

"America's hopelessly muddled tax system is already sagging under the weight of its own complexity," Keating concluded. "Hopefully, policymakers will recognize this crisis by considering fundamental tax reform this year, so our civil liberties and our economy won't suffer any longer."

NTU is a non-profit, non-partisan citizen organization founded in 1969 to work for lower taxes and smaller government at all levels. Note: NTU Policy Paper 124, A Taxing Trend: The Rise in Complexity, Forms, and Paperwork Burdens, is available online and in PDF format