NCPA - National Center for Policy Analysis

Tax Simplification

March 15, 2012

The complexity of the American tax code is not only inconvenient: it is also very costly, says Carrie Lukas, managing director of the Independent Women's Forum.

  • A 2009 survey conducted by the Tax Foundation revealed that 85 percent of adults agree the federal tax code is complex and 82 percent believe it either needs major changes or complete overhaul.
  • In 1980, 38 percent of Americans used a paid preparer to compile their taxes, but as of 2007 (the most recent year with data available), 58.6 percent of Americans used paid assistance.
  • Altogether, individual taxpayers spend $35 billion out-of-pocket in filing their taxes, with the average non-business individual filer spending $160 on tax filing help.

Money spent on professional assistance to comply with complicated taxes is wasteful and would be better spent in more productive industries in the economy.  Furthermore, American taxpayers don't just waste money filing their taxes, but also their time.

  • The National Taxpayers Union reports that Americans spend an estimated 7.64 billion hours complying with the tax code.
  • This equates to 3.82 million employees working full-time year-round just on tax compliance.
  • Furthermore, Nina E. Olsen, the official National Taxpayer Advocate at the IRS, said that even with 100,000 employees, the IRS has difficulty administering the tax code efficiently.

The burdens of the tax code are also damaging to American businesses, which in turn impose their costs on consumers through higher prices and lower levels of hiring.

  • In 2009, the National Taxpayers Union estimated that compliance costs alone would take $159.4 billion from American corporations.
  • Because this is approximately half of what corporations pay in taxes, this essentially means that for every dollar the government collects in revenue, American businesses pay $1.50.
  • The need to avoid this burden incentivizes businesses to lobby the federal government, creating loopholes and further complicating the tax code.

Source: Carrie Lukas, "Tax Simplification," Independent Women's Forum, March 2012.

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