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How burdensome is the tax code?

How much time and money is spent trying to comply with the tax code? The free-market American Action Forum (AAF) has released a report with the details.

Compiling information from the Office of Information and Regulatory Affairs, AAF found that Americans spend a total of 7.7 billion hours completing paperwork regarding tax filings. On average, this comes out to around 12.2 hours per individual response.

The associated costs of working through this paperwork are staggering. According to AAF’s calculations, Americans spend a grand sum of $170.4 billion in order to comply with all of the IRS’s paperwork.

Most of the costs and time burdens are related to five of the IRS’s paperwork requirements: the individual income tax, the bond tax credit, the partnership tax return, appreciation and amortization, and the tax return for an S corporation.

Out of the five mentioned, the individual income tax is the most cumbersome. AAF’s research concludes that the individual income tax generates 199 forms, requires Americans to spend 2.6 billion hours filling out these forms, and necessitates $33.6 billion in compliance costs.

In regards to government agencies, the Department of the Treasury takes home the cake for having the most onerous paperwork and cost requirements. At an all-time high of 7.8 billion hours, the amount of time the agency spends filling out paperwork has increased 1.5 billion hours since the fiscal year of 2010. Since 1995, the Treasury’s paperwork burden has increased by 47 percent.

Various entities have reached differing figures in their attempts to estimate the total costs of tax compliance. The methodology behind AAF’s numbers is explained in the report.

What most experts agree on is that the strain of filing taxes is great — and it continues to grow. With this in mind, it is not surprising that 59 percent of individual tax payers are willing to hire professionals to take on the task for them. The number is even greater for unincorporated business taxpayers, where 71 percent rely on preparers to handle their tax filings.

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