Tax compliance costs 22c for every dollar collected

[cute fuzzy bunny]

According to this study

http://www.taxfoundation.org/publications/show/1281.html

It costs taxpayers 22c for every dollar paid to the IRS to comply with tax filing procedures and related costs.

Summary of the report:

In 2005, taxpayers will pay roughly $1.2 trillion in federal income taxes. But America’s tax burden is more than just the amount of tax paid. It also includes the cost of complying with federal taxes, including tax planning, paperwork and other hassles caused by tax complexity.

In the last century the cost of tax compliance has grown tremendously. This is due partly to the inherent difficulty of taxing income, but also because of growing non-economic demands lawmakers place on the tax code. As Congress debates the tax reform recommendations of the President’s Advisory Panel on Federal Tax Reform, Members should address this growing compliance burden, and work to reduce it through tax simplification and reform.

In 2005 individuals, businesses and nonprofits will spend an estimated 6 billion hours complying with the federal income tax code, with an estimated compliance cost of over $265.1 billion. This amounts to imposing a 22-cent tax compliance surcharge for every dollar the income tax system collects. Projections show that by 2015 the compliance cost will grow to $482.7 billion.

The burden of tax compliance does not fall evenly on taxpayers. It varies by type of taxpayer, income level and state. In 2005, businesses will bear the majority of tax compliance costs, totaling nearly $148 billion or 56 percent of total compliance costs. Compliance costs for individuals will be $111 billion or 42 percent, and non-profits will bear nearly $7 billion or 2.5 percent of the total.

When examined by income level, compliance cost is found to be highly regressive, taking a larger toll on low-income taxpayers as a percentage of income than high-income taxpayers. On the low end, taxpayers with adjusted gross income (AGI) under $20,000 incur a compliance cost equal to 5.9 percent of income while the compliance cost incurred by taxpayers with AGI over $200,000 amounts to just 0.5 percent of income.

State-by-state estimates of the 2005 federal compliance cost also vary widely because state populations and economies differ so significantly. On a per capita basis, Wyoming ($1,242), Delaware ($1,181) and Colorado ($1,167) face the highest compliance cost while Mississippi ($658), West Virginia ($689), and Tennessee ($705) face the lowest. Measured per $1,000 of income, Montana ($38), Utah ($37), and Wyoming ($33) face the highest compliance cost while California ($19), Connecticut ($20) and Massachusetts ($21) face the lowest.

 

[bongo2]

Simplification would be fabulous. I would even pay more taxes if the system were simpler (well, I say that now anyway. . .). Unfortunately, whenever they talk about "simplification" they're really talking about the, completely off topic, flat-tax, and that tends to kill any discussion. It's not the progressive tax schedule that makes it complicated. It's the 24 pages of deductions, limitations, worksheets, schedules, AMT, blah blah blah that I have to send them.

I would love a "consumption" based tax, or a VAT, or a sales tax. You could instantly take the compliance from 100M individuals to a few thousand corporations. But there is no chance.

It doesn't look like they counted as part of the compliance "doing stupid things with your investments to avoid taxes." Examples like oil / timber / real estate trusts and variable annuities or variable whole life.

I do have to wonder about this study. Do they really think that someone who makes $20k pays $1.1k in compliance costs, while someone who makes $200k only pays $1k? Seems unlikely. I guess I'm using the boundaries when they say "over" and "under," but it still makes you wonder.

Far worse than the personal income tax (which is a pain, but relatively inflexible) is the corporate income tax. There are countless examples of corporations doing stupid and expensive things to avoid taxes. Not to mention the fleet of accountants and lawyers they employ. But that's one that will never go away because people don't feel the pain directly.

 

[bongo2]

One more thing. Does it seem right to impose all the compliance costs on just the income tax portion of the tax system (for the 22% number)? A little contrived, right? Still, the 10% or so of the total budget is high enough, and, like I said before, I don't think they're counting the avoidance.

 

[cute fuzzy bunny]

You know, I read it fast, but I think they're including stuff like maintaining records, business transactions, etc and then averaged it out. This outfit probably has some political angle or agenda and hence the report, but I couldnt see anything immediately and obviously hinky with them.

 

[MasterBlaster]

The political agenda is implied.

The implication is that if we got rid of income taxes and went to something else then taxes could be 22 percent less.


So the political agenda is to get rid of income taxes

 

[ladelfina]

In 2005 individuals, businesses and nonprofits will spend an estimated 6 billion hours complying with the federal income tax code, with an estimated compliance cost of over $265.1 billion. This amounts to imposing a 22-cent tax compliance surcharge for every dollar the income tax system collects.

Doubt that this includes the enforcement costs; i.e., how much does it cost in legislation time, forms and instructions generation, education/training, compliance, audits, processing, IRS agents and so on... What would including those costs bring the total to?? Does this total include the gross revenues of Intuit and H&R Block?

I WENT TO MIT and cannot figure out a significant part of the tax instructions; what hope does that hold out for the average person?

 

[Texas Proud]

I WENT TO MIT and cannot figure out a significant part of the tax instructions; what hope does that hold out for the average person?

Thats your problem You are trying to put it into some formula... when it should be read as a puzzle with many different outcomes according to which path you go down.. us accountant types are taught to read this crap and even we do not know what the real intent is....

 

[cute fuzzy bunny]

Considering i'm in my third day of video editing and dvd mastering, both of which are rich in technical "compromise", I can really appreciate the vagaries of the tax code and its related rich political compromise.

Those who think in terms of serial or branching logic will, however, be flummoxed.

Those like myself, well afflicted with Adult Attention Deficit Disorder will really have no trouble with it.

http://early-retirement.org/forums/index.php?topic=4021.msg70215#msg70215

 

[retire@40]

This is for all you complainers out there. It a Christmas card I got from my friend Warren.

 

[TomSimpsonAZ]

I work in the corporate property tax industry.....this country wastes resources like my old cars

 

[Eagle43]

Retire@40, that post is priceless! or a picture is worth a thousand words.

 

[cute fuzzy bunny]

This is for all you complainers out there. It a Christmas card I got from my friend Warren.

Had me for a minute there until I got "his right" and not the "right side of the photo". I thought for a second there the contents of the filing cabinet were the berkshire tax returns and the huge stack was his 13 year old return.

Whew!

 

[MJ]

Retire@40, that post is priceless! or a picture is worth a thousand words.

or over 10,000 pages.

 

[BUM]

Dont get me started Compliance requirements extend beyond taxes. Federal, state, local, professional, and self-imposed constraints make it impossible to satisfy all. Like the tax issues... do the best you can...muddle through. Just don't let the mud get too high

 

[Craig]

We need a national sales tax ... get rid of the income tax, and no VAT.

Exclude some basics, such as food.

Many payers, few filers. Much easier to audit and enforce.

Current system is inefficient, very intrusive (whose business is it, really, to know where your interest, dividends, income comes from ...), ridiculously complicated, and punitive towards production.

And, I'm a CPA, and once specialized in taxation. Very corrupt system ...

 

[ladelfina]

Re; sales tax and VAT... Charles, maybe you can interpret the difference in terminology.

The VAT in Europe is a tax across the board on both goods and services. There aren't exclusions for food or any basics, but there are a couple of different rate tiers.

How does this differ from a sales tax? I think people believe that a sales tax is only on hard goods, but when I was a small business owner the state had some mighty arbitrary decisions on a range of different services businesses needed to charge clients sales tax on. (eg., "graphic design" was to be taxed; "advertising" was not taxed.). It got very metaphysical: I think the distinction came down to whether there was some kind of object that passed from one hand to the next. An architect hands over a set of plans (taxable) but an engineering consultant might hand over a report, which they did not deem a tangible finished product.. weirdness like that.

We had a number of p****d-off clients who refused to believe there was a sales tax on our services, which meant we ended up giving the state even more of an interest-free loan than normal until we managed to write it off further down the line.

The state wants its cut the month you invoice, but you only get reimbursed when/if the client pays.. The size of the float must be huge, but I often wondered what the actual state-wide figure was. Are these amounts figured into the tax compliance cost as well??