How Complex is the U.S. Tax Code?

Last updated on April 9, 2022

Every taxpayer knows that the U.S. tax code is complex. Hours spent in understanding the tax laws and codes every year when filing taxes are difficult to forget. Therefore, most taxpayers use the services of tax preparers to prepare their taxes. The U.S. has up to 1.2 million tax preparers, much more than the number of enforcement officers.

Not only are the taxpayers, the IRS is also frustrated by the complexity of the tax code. Both Democrats and Republicans are now looking to simplify the tax code, which has become more complex with years. Under tax reforms, simplifying the tax code has become a priority.

According to a TAS analysis of IRS data, U.S. taxpayers and businesses spend about 7.6 billion hours a year complying with the filing requirements of the Internal Revenue Code. The figures do not include the millions of additional hours that taxpayers spend when they are required to respond to an IRS notice or an audit.

According to the IRS, if tax compliance were an industry, it would be one of the largest in the United States. To consume 7.6 billion hours, the “tax industry” requires the equivalent of 3.8 million full-time workers.

Based on Bureau of Labor Statistics (BLS) data on the hourly cost of an employee, TAS estimates that the costs of complying with the individual and corporate income tax requirements in 2006 amounted to $193 billion – or a staggering 14 percent of aggregate income tax receipts.

Since the beginning of 2001, there have been more than 3,250 changes to the tax code, an average of more than one a day, including more than 500 changes in 2008 alone. Still, the tax code is nowhere close to being simple, the reason why a complete overhaul of the tax code is being considered. The time is high and so are the costs.