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InsiderOnline Blog: April 2014

Do You Have Time for the Taxman?

The cost of taxes is more than just the amount of money the Internal Revenue Service takes from you every year. You also pay with the time and energy it takes to keep your records and fill out the forms. The time cost of taxes adds up to more than 27 hours per person, say the researchers at e21:

In May 2013, scholars at the Mercatus Center estimated the costs of tax compliance to be at least $215 billion a year.

A 2008 study by the Taxpayer Advocate Service at the IRS estimated that Americans spend 3.5 billion hours a year preparing their individual income tax returns. With 134.6 million filers at the time, this averaged to each individual spending 26.4 hours complying with the tax code.

Since the Taxpayer Advocate study was conducted, the tax code has only grown more complex. Wolters Kluwer, the global information services and publishing company, estimated the length of the U.S. tax code to be 67,204 pages in 2007. Their 2013 estimate showed 9 percent growth, to nearly 74,000 pages.

Because of the growing complexity of the tax code, taxpayers likely now average more than 27 hours on their individual income tax returns per year. [e21 – Economic Policies for the 21st Century, April 15]

The tax code is officially 2,652 pages long and contains about the same number of words as the entire Harry Potter series. Joseph Henchman points out, however, that tax preparers and tax lawyers usually need to consult IRS regulations as well as tax-related case law in order to know what the law really requires of a taxpayer. When you count all those things, the size of the tax code comes to over 70,000 pages. That figure has grown steeply in the last few decades:

[Tax Foundation, April 15]

While the paperwork burden of taxes has been rising for decades—and now stands at an all-time high—ObamaCare bears much of the blame for recent growth, writes Sam Batkins:

According to AAF [American Action Forum] records, [Affordable Care Act] regulations have added a net of 71.3 million hours to Treasury’s paperwork burden. Furthermore, there are several pending ACA-related IRS paperwork requirements at OIRA now, including the individual mandate (7.5 million hours) and the “Net Investment Income Tax” (24 million hours). The individual mandate lacks formal OIRA approval, even though the deadline for most tax returns is April 15. [American Action Forum, April 15]

Tax code complexity is a problem for small businesses, too, reports Alissa Tabirian:

Small businesses are increasingly burdened with tax preparation costs, with a majority spending over a week per year on federal tax preparation and thousands of dollars on external accounting firms, according to the National Small Business Association’s (NSBA) 2014 Taxation Survey released last week.

According to the report, “the current U.S. Tax Code punishes work, investment, risk-taking and entrepreneurship, and is becoming an insurmountable hurdle for the growth of existing businesses and creation of new firms.”

This year “nearly 60 percent of small firms spend more than 40 hours per year on federal taxes alone,” while 40 percent spend over 80 hours, or two weeks.

Nearly half spend over $5,000 on the administrative side, while “just 12 percent report they handle their taxes within their firms”—the overwhelming majority pays external tax firms to handle taxes.

The complexities of tax preparation led 73 percent to report “federal taxes have a significant to moderate impact on the day-to-day operation of their business.” As such, 67 percent “support broad tax reform that will reduce both corporate and individual tax rates coupled with reduced deductions.” [The Foundry, April 15]

Measured in full-time equivalent employees, taxation preparation is bigger than the entire federal workforce, notes Mark Perry:

In a recent report to Congress, the National Taxpayer Advocate estimated that American taxpayers will spend 6.1 billion hours this year complying with the income tax code, based on IRS estimates of how much time taxpayers (both individual and businesses) spend collecting data for, and filling out tax forms. That amount of time spent for income tax compliance – 6.1 billion hours – would be the equivalent of more than 3 million Americans working full-time, year-round (or 2.2% of total US payrolls of 138 million). By way of comparison, the federal government currently employs 2.7 million full-time workers, and Wal-Mart, the world’s largest private employer, currently employs 2.2 million workers worldwide and 1.4 million workers in the US (both full-time and part-time). [AEIdeas, April 10]

As e21 notes, with an extra 27 hours you could listen to the entire Beatles discography—twice. We recommend doing that, by the way. But for now, enjoy this one:

Posted on 04/15/14 10:34 AM by Alex Adrianson

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