The cost of compliance
With April 15th almost here, people need to be reminded what the cost of doing nothing is. What the federal tax system is costing the average taxpayer in addition to his taxes is unbelievable.
Dr Karen Walby has updated the paper on compliance costs.
Some of the points:
- Complying with the federal income tax code amounts to imposing a 22.2-cent tax compliance surcharge for every dollar the income tax system collects.
- The average taxpayer paid $3,112 more in taxes to subsidize the unwillingness or inability of some taxpayers to pay their fair share.
- In other words, if everyone paid the taxes they owed, average individual income taxes paid per taxpayer could have been 38.7% percent less.
- Compliance costs are found to be highly regressive.
- Corporations with assets of $1 million or less (more than 90 percent of all corporations) paid a minimum of $382 in compliance costs for every $100 they paid in income taxes
- Projections show that by 2015 compliance costs will grow to $482.7 billion.
And possibly most sobering:
“A compliance burden of 6 billion hours per year represents a work force of over 2,884,000 people: Larger than the populations of Dallas (1,210,393), Detroit (900,198), and Washington, D.C. (553,523) combined; and more people than work in the auto, computer manufacturing, airline manufacturing, and steel industries combined.â€
Read the full paper: “What the federal tax system is costing you besides your taxes“
Morphh,
Thanks for posting this one! For years, I and perhaps others have had 6 billion hours and $265 billion branded on our forheads. This update caused me to read the 2005 Tax Foundation study, and frankly I was amazed at what I learned.
The study used the IRS planning factors as to how long it would take to fill out each form. Then they assumed an hourly rate of $37 and came up with the $265 billion. Does anyone really believe that filling out your tax forms on your free time costs $37 per hour? I don ‘t!
In addition, if you study the charts on page 7-9, some serious discrepencies are evident. For instance, does anyone think it takes 1.7 hours to fill out a 1040EZ? Or how about the fact that Tax Foundation figured the time to package and send (mail) each page, and then totaled the times. What if a typical return had five forms, each taking .6 hours to pack and send. Does it make sense that five forms would take five times as long to pack and mail as one form? Nonsense!
All these IRS planning factors were developed back when we were filing returns using a stubby pencil and a hand held calculator. The 6 billion hours does not take into account all the tax software currently on the market. In fact, read the last page of the Tax Foundation study and you will learn that the IRS scrapped this whole dumb planning model in 2006 and went to an IBM developed model that provides total prep times for various categories of tax filers. The data in Dr Walby’s paper has been overtaken by events!
I also wondered how the IBM model compared to the old one, and found that the new model assumes that filling out the AMT form takes less than half of the time listed in the old model. Might that mean that the 6 billion was really only 3 billion?
One other thing of interest to me is that the Tax Foundation study broke out Corporate compliance costs from individual costs. Turns out that Corporate compliance costs were only 60% of the $265 billion. My 17% retail price increase estimate attributed all $265 billion to businesses, and when the proper numbers are used, business compliance costs were only $147 billion and the average after tax retail price increase should have been 18%. No big deal, but accuracy does count, doesn’t it?
The cost estimates of the tax system have always been garbage. The estimate in the Tax Foundation report for a 1040 is 13.6 hours–including 6.3 hours for form prep. It took me about 1.5 hours to do my 1040 (and that includes adding up significant medical costs to see if we could deduct). I didn’t spend anywhere near 4 hours in an “education stage.” And packaging/sending was as easy as clicking “Submit” at TurboTax.com–that doesn’t take .6 hours. I did spend $30 bucks (it’s deductible) on the TurboTax website though.
With the way these numbers are generated, you can play with the variable inputs (hrs/form, cost/hr) and come up with any cost amount you want.
Taxes on labor income and on consumption negatively affect household consumption and savings. Under a high tax burden, the firms also can’t afford the costs of the factors of production (rent on capital and wages for labor). Taxation also reduces the incentive to produce more goods and services, since a large portion of your earnings is taken away by the State, so it’s easy to understand why people are losing their jobs and the majority of Americans are suffering at the hand of their own elected officials: BIG Government!
New video exposes the IRS
View online at http://economicsforliberty.wordpress.com
I do agree that any and all statistics are the most biased and inaccuarate sources of information. After all, when is the last time that you saw a statistic that was not funded or executed to validate a cause, point, or position. however, at the end of the day, when accounting for all variables, whether we are talking about 2 billion or 6 billion hours, isn’t this enough to move the guage and demand reasonable attention to consider a simplified and truly fair solution to the current dilluted and eternally flawed tax system???
As perverted as the Fair Tax has become with HR25 and a compromised AFFT that has sold itself out or been hijacked by business interests, I would readily take it over the income tax.
No loving parent would accept the income tax system for their children. It is as un-American as any other aspect of Marxism.
A return to and push for the Fair Tax as originally proposed is what should be discussed, not the abstruse and subjective debates here over arcane what-ifs of HR25 versus the present income tax system.
Nothing can make the income tax good, except a repeal of the 16th Amendment with adoption of a new amendment that forever bans another income tax in any form other than one apportioned by representation in times of DECLARED war.
Why not have the Fair Tax opponents list what they feel are the fatal flaws in HR25 – Hank van Gleson did something like this in an earlier posting – (not to be equated to the original Fair Tax – simply naming HR25 the Fair Tax does not make it the Fair Tax) and get together with the Fair Tax (the real one, not HR25 or the AFFT one) proponents to look for straightforward corrective measures?