Nation's Oldest Taxpayer Group: U.S. Tax Complexity Is Civil Liberties Crisis, Costs Americans Billions in Lost Dollars & Hours

(Alexandria, VA) – Our complex tax system continues to be one of the most expensive in the world, costing the American economy $228.4 billion and 6.38 billion hours per year; combined with recent Congressional legislation, it threatens to become a full-blown civil liberty crisis where no personal financial detail is your own, according to the 362,000-member National Taxpayer’s Union’s (NTU’s) 14th annual study of tax complexity.

If federal tax-law compliance were an occupation, it would now be the third-largest job in the nation – right behind cashiers but ahead of office clerks. The 6.38 billion hours spent this year to navigate our massive tax code is the equivalent of about 3.19 million employees working 40-hour weeks year-round with just two weeks off. That is nearly the number of workers employed by Wal-Mart, McDonald’s, Target, and Kroger combined!

“For struggling Americans seeking job creation, Washington’s idea of putting us all to work complying with its byzantine tax code is probably not what they had in mind,” said NTU Senior Counselor and study author David Keating. “NTU’s Taxing Trend Report shows a tax code whose complexity continues to cripple our economy even as more regulations and less privacy are already on the way.”

NTU has conducted comprehensive examinations of Tax Code complexity since 1999, highlighting historical trends in the compliance burden the IRS places on Americans. NTU’s findings include:

  • The government’s most current version of the Tax Code tops out at 3,939,937 words, an increase of more than 102,000 words from February 1, 2010. That is seven times as long as War and Peace.
  • Paperwork burdens imposed by the Department of the Treasury, most of them attributable to personal and business income tax forms, cost Americans 6.38 billion hours according to the most recent available data. This gigantic amount of time would add up to a jaw-dropping $228.4 billion, when measured against the Bureau of Labor Statistics’ average hourly employer cost for civilian workers and accounting for costs for things like postage, tax software, and tax preparers.
  • The average compliance time for those using any of the Form 1040 series is 18 hours, up from 17.3 hours two years ago. The average out-of-pocket cost for filing these forms is $230. Seventy-five years ago, Form 1040 instructions were just two pages; now they are 189 pages long.
  • Beyond the letter of the law, there are 20 volumes of regulations spanning 14,327 pages with 10.1 million words. Meaning the law and regulations now top 14 million words in all.
  • Planning on professional help to ease the tax headache? Tax preparation costs continue to rise – since 1980, the average H&R Block fee has more than doubled (after inflation) to $179.07. Furthermore, even in the computer age, tests of tax preparers and tax software involving mock returns can still yield surprising and contradictory results.

NTU’s “Taxing Trend” Policy Paper also examined the Tax Code’s detrimental impact on the U.S.’s business position in the world. This year the U.S. maintained a dismal rank of 66th worldwide (out of 183 countries surveyed) for hours spent on tax compliance by a typical smaller corporation (based on a joint study published by PricewaterhouseCoopers and the World Bank Group). The U.S.’s rank for total tax rate declined further, to 131st out of 183, a downward slide of 7 spots.

Keating warned that financial privacy and taxpayers’ civil liberties are on perilous footing saying, “Every detail of a taxpayer’s private financial life is open for government inspection; mixing the extraordinary powers given to the IRS with new laws is a recipe for a civil liberty catastrophe.” For example, the Patient Protection and Affordable Care Act will force new compliance requirements on small businesses in particular and empowers the IRS to enforce the individual mandate. Legislation like the Foreign Account Tax Compliance Act drives away international investment and places undue burdens on Americans working abroad.

Keating concluded: “For the sake of recovering our nation’s prosperity, competitiveness, and protecting the rights of citizens, 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 130, A Taxing Trend: The Rise in Complexity, Forms, and Paperwork Burdens, is available online and in PDF format