US Tax Compliance Costs Rising

by Mike Godfrey, Tax-News.com, Washington

14 January 2002

Tax costs for US taxpayers are on the rise again, due not just to the amount of tax that they are paying, but to the amount of time spent preparing tax returns, or paying a professional to wade through the complicated tax code on their behalf.

A study conducted by Scott Moody of the Tax Foundation reveals that last year, US citizens spent 4.6 billion hours on tax preparation. To put it another way, the $140 billion in time and money invested by Americans in tax preparation last year is greater than the revenues of Sears, Disney, Microsoft, Rite Aid, McDonalds, 3com, and Radio Shack combined.

Mr Moody reveals that ironically, as the result of the earned income credit (a complex tax device created to assist the country's low earners), the working poor are often obliged to pay tax preparers to complete their returns, an expense which they can ill afford.

According to the report, taxpayers earning under $50,000 in adjusted gross income pay more than half of the compliance costs for all individuals. However, those earning under $20,000 shoulder the heaviest burden, paying an average of 4% of their adjusted gross income in tax.

The report also revealed the extent to which the US tax code has grown, now taking up 982,000 pages of the federal code, whereas in the mid-1950s, it comprised a mere 172,000 words. Apparently, the average rate of changes to the tax code is now approximately one every 1.4 years.

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