Yesterday “I did” my taxes. Of course that is a euphemism. I needed a tax account to help me. When I was done (and, by the by, I am only a retired physician, not a CEO) my federal and state tax documents totaled 178 pages.
President Trump has promised tax reform. Most of the media coverage is about how much tax relief his proposal will bring. But he has also promised to simplify the tax code. This is probably equally important.
Here are a few facts to demonstrate the complexity of the US Tax Code. Importantly, these statistics do not show the actual tax burden but only the cost of filing.
[Source: The cost of tax compliance, by Joshua D. McCaherty – The Tax Foundation]
The graph below shows the growth of the US tax code.
What happened between 1970 and 2012 that required 50,000 new pages of tax code? As the saying goes, “It beats the hell outta me.” The tax code has been altered so many times by changes to statutes, regulations and case law, that it now adds up to over 70,000 pages of instruction for filing taxes.
The result of this massive tax code:
- taxpayers take an average of 8 hours for each nonbusiness return
- the average cost to an individual filing a nonbusiness tax return is $120
- nearly 169 million individual tax returns (including all individual tax forms and estimated tax forms) are filed annually
- Americans spend over 1.35 billion hours filing individual taxes
But individuals are lucky by comparison to small businesses:
- business returns will take an average of 23 hours to file
- each return costs an estimated $420
Businesses in the U.S. file over 10 million tax returns. Assuming the IRS’s estimated $420 filing cost holds true, over $4.4 billion was paid in compliance cost by businesses and non-profit organizations.
For those 10 million returns, the IRS estimates it will take nearly 240 million hours of filing tax returns.
Labor tax compliance alone cost businesses an additional 55 hours. The IRS reports that nearly 30 million employment tax forms are filed. This adds an additional 1.65 million hours. The IRS estimates that this compliance alone costs firms an additional $12.6 billion.
Allow me to summarize:
- All said, Americans spent over 3.24 billion hours preparing and filing their taxes
- That equals 369,858 years (370,000 years ago our ancestral humans separated from the Neanderthals)
- Total cost for compliance approaches $37 billion annually for federal taxes alone.
- Additional time is spent filing state taxes each year.
My friends, THIS IS NUTS!