Thursday, January 06, 2011

Tax Waste: 6.1 Billion Hours Spent Complying with Federal Tax Code

Earlier today the National Taxpayer Advocate Nina E. Olson issued her new report to Congress. She called the ever-growing tax code's complexity as the most serious problem facing both the IRS and taxpayers. Nina’s got it just right: this is inefficient and leads to frustration, honest mistakes, and widespread evasion. But will her plan to fix it work?

Forbes reports:

    As a measure of how unwieldy the law has become, Olson’s staff found the tax code had grown to 3.8 million words as of Feb. 1, 2010, compared to the 1.4 million words the Joint Committee on Taxation reported in 2001. (That doesn’t include tweaks Congress made to the tax code in 2010—some 579 in all, according to a count kept by tax publisher CCH, a division of Wolters Kluwer.)

    While the burden of complying with all those words has been calculated in different ways, Olson multiplied the IRS’ own estimates of how much time taxpayers spend collecting data for and filling out each individual tax form by the number of forms filed to estimate that Americans (both individuals and businesses) spend 6.1 billion hours a year complying with the code. That’s the equivalent of more than 3 million workers toiling away full time, all year. By way of comparison, the Federal government employs the equivalent of 2.1 million full-time civilian workers and Wal-Mart, the nation’s largest private employer, has 1.4 million workers in the U.S., although not all are full time.

    Complexity is also raising individual taxpayers’ out-of-pocket costs for filing their 1040s, Olson noted. About 60% of individual taxpayers now pay CPAs, enrolled agents, H&R Block or other services to prepare their returns while another 29% use software, such as Intuit’s TurboTax. According to a recent IRS study, the median individual taxpayer (as measured by income) spent $258 in 2007 for tax prep, up from $220 in 2000, in constant, inflation-adjusted dollars.

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