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Annual Study Shows Heavy US Tax Compliance Burdens

by Mike Godfrey,, Washington

21 April 2014

The National Taxpayers Union (NTU) has released its 16th annual study of tax complexity in the United States, finding that the economy lost USD224bn and 6.1bn hours of productivity due to the burden of compliance with the country's tax code.

NTU Senior Counselor, and the study's author, David Keating, said: "Our convoluted tax laws cost much more than the dollars collected. It's time Congress and the President put a stop to the wasted time and money spent figuring out our complicated tax laws."

NTU has been publishing "A Taxing Trend: The Rise in Complexity, Forms, and Paperwork Burdens" to reveal tax complexity burdens since 1999, highlighting historical trends in the compliance burden the Internal Revenue Service (IRS) places on Americans.

This year's key findings include the fact that, according to the IRS National Taxpayer Advocate, the total time burden of tax compliance has reached 6.1bn hours this year. That is the equivalent of about 3.05m employees working 40-hour weeks year-round with just two weeks off; or, it is said, more than the number of workers at three of the biggest retailers in the Fortune 500 – Walmart Stores, McDonald's and Target – combined.

The total compliance cost is calculated at USD224.3bn a year. For individuals alone it is USD90.3bn, and they also spend USD31.7bn annually on tax software and other out-of-pocket costs. Those expenses include "tax return preparation and submission fees, postage and photocopying costs, and tax preparation software costs," according to a February IRS regulatory filing.

The average taxpayer using the 1040 "long" tax return form – which according to IRS projections amounts to two-thirds of all 1040 returns filed – spends 15 hours on tax compliance. Seventy-five years ago, the form 1040 instructions were just two pages long, but now taxpayers must go through 206 pages of instructions – quadruple the number of pages in 1985, the year before taxes were "simplified."

The most recent Information Collection Budget published by Office of Management and Budget attributes 6.7bn hours of paperwork burdens to the US Treasury, most of it due to taxes. The Treasury accounted for 74 percent of the government-wide paperwork compliance burden; no other agency had a share above 6 percent.

The NTU also notes that most estimates put the length of the US tax code at roughly 4m words – more than twice the length of the King James Bible plus the entire works of Shakespeare combined. In addition, to help provide additional detail, there are 20 volumes of regulations spanning over 14,000 pages with 10.48m words, meaning the law and regulations now top 14.4m words in total.

The NTU has decided that "a fundamental overhaul of the US tax system remains a national priority," and the study points out that "people are already paying plenty for a complex tax system, sometimes directly out of their own pockets, other times through less tangible ways – in the form of lost economic productivity and diminished personal freedoms. That's why reforming our tax system, and reducing its complexity, must remain at the top of Washington's policy agenda."

Keating concluded that "too many Americans spent too long or too much figuring out their taxes, only to pray they got it right. Paying taxes in a civilized society should not be this hideously complicated."

TAGS: individuals | compliance | tax | business | tax compliance | employees | Internal Revenue Service (IRS) | tax authority | United States | tax reform | Tax

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