Complexity in Tax Code Leads to $224 billion Loss

Last updated on April 21, 2023

In its annual study, the National Taxpayers Union (NTU) has shared its finding that the U.S. economy lost $224 billion and 6.1 billion hours due to the burden of compliance with the tax code. The complexity of the tax code forces most taxpayers to hire help for tax preparation and those who prepare taxes themselves end up spending hours to correctly prepare their tax returns. Tax News shares the details of the NTU’s findings:

“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 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.’”

Even though efforts are now being made to simplify the tax code, it will be a long road to removing the unnecessary codes that are making the tax code complex and difficult to comply to.