The Economic Cost of Tax Compliance

Your Guide to State, Local, Federal, Estate + International Taxation

A recent study performed by The Tax Foundation has produced an approximate total cost, in time and dollars, of tax compliance in the United States. For those not familiar with The Tax Foundation, they are an independent and non-profit organization founded in 1937, whose mission is to study, improve and simplify the tax code, for the benefit of taxpayers and the United States as a whole.

The figures produced by the study are quite staggering; based on data from the Office of Information and Regulatory Affairs, as well as the Bureau of Labor Statistics, The Tax Foundation pins the total time spent on tax compliance by Americans at over 8.9 billion hours in 2016. That’s billion, with a B. According to the study, those 8.9 billion hours translate to over $409 billion in lost productivity annually.

So, why are taxes such a massive time drain? The primary reasons are the size and complexity of the present day tax code. In 1955, the full text of the Internal Revenue Code stretched to 409,000 words. Since then, the Code has ballooned to 2.4 million words, with the majority of that expansion happening since 1985. The Code itself is merely a small part of the full library of IRS tax literature. There are nearly 8 million words of tax regulations, which are releases from the IRS that clarify how the Internal Revenue Code should be interpreted in practice, as well as countless court cases, letter rulings, and other publications.

Unfortunately, meaningful simplification of the tax code appears unlikely, at least for the foreseeable future. Quite the opposite in fact, as the Code seems to inevitably become larger and more complex each year. So for now, the economy is going to continue to have to do without all those hours of productivity, as they will surely be devoted to tax compliance for years to come.

To read the full study or get more information on The Tax Foundation, visit www.taxfoundation.org.

By Austin Bradley, CPA