Study: The Tax Code Cost Taxpayers $228 Billion

Kevin Glass | April 18, 2012 9:43 PM

The National Taxpayers Union put out a policy paper looking at the increasing complexity in the tax code and came up with some shocking results. Americans spent over six billion hours filing their taxes this year and used professionals to figure the tax code out for them at an alarming rate.

The study, "A Taxing Trend: The Rise in Complexity, Forms, and Paperwork Burdens," estimated that at the average cost for a civilian worker, six billion hours filling out forms cost the economy $228.4 billion.

Complexity has only gotten worse. The number of hours spent filling out tax forms has risen and the number of pages in the tax code has exploded in the last ten years. These things have contributed to PriceWaterhouseCooper, an accounting form, estimating that the U.S. only has the 66th easiest tax code to comply with.

Estimates are now that paid preparers file over 60% of all tax returns, according to the report - and if the number of computer preparations (like TurboTax) are counted, that number rises to over 90%. That's not including the number of returns prepared by certified volunteers!

NTU goes on to highlight that even these paid preparers can't get the tax code right.

he Tax Code is so convoluted that no one inside or outside the IRS understands it. In 2007, USA Today famously asked five professionals to calculate a family’s tax bill, and of course, they all got a different answer! After reviewing each other’s work, they couldn’t agree on who was right. The newspaper reported, “As the Tax Code turns ever more unwieldy, deciphering it has become more art than science, tax experts say.”
The person who designed the test had the highest tax bill for mom and dad, but the lowest overall family tax bill. He got the biggest refund for the family by having the “23-year-old [son] claim his 16-year-old sister as a dependent.” This anomaly is the result of some tax goof-up in Congress, and is entirely legal, if a bit strange.

The tax code is at the point that the IRS could probably find something wrong with nearly everyone's tax return if they so desired. This is only going to get worse, as NTU notes, as Obamacare's tax and regulatory regime gets implemented over the next few years. This might become a civil liberties issue when, as they pointed out, the government might be able to find something wrong with anyone's tax return based on misinterpretation and complexity.

This isn't about more revenue, or justice or fairness or even tax cuts. The sheer complexity of the tax code is onerous and harmful to the American economy. Even revenue-neutral tax reform that cuts down on compliance costs and moves the U.S. towards a comprehensible tax code would be beneficial to everyone.