People in the United States spend an estimated 2.6 billion hours to file their tax returns each year, and spend $33.6 billion to comply with tax law, according to a new report.
Filing individual tax returns occupies the largest share of time and money, imposing compliance costs of 7.7 billion hours and $170.4 billion, according to new analysis from the conservative-leaning American Action Forum. An estimated 150 million people filed tax returns this year.
The analysis comes as lawmakers in both parties agree that the tax code has become overly complicated. However, efforts to reform the tax code and simplify it have repeatedly run into a difficult political reality, and have struggled to gain traction in Congress.
AAF’s analysis indicates that the complex nature of the code carries a real economic burden, as complying with it pulls billions of hours and dollars from the economy that could have been used on other purposes.
IRS data indicates that filing individual tax returns carries the highest compliance cost, but the agency also only tracks costs for five of its 874 recording and recordkeeping requirements. All told, the IRS reports just $33.8 billion in compliance costs, almost all taken up by the filing of individual returns.
AAF applied the average hourly cost of a civilian employee to the IRS’s remaining projects, and found that compliance costs could reach a total of $170.4 billion, which is five times higher than what the IRS reports for compliance costs.
All told, the IRS has 897 different forms required for various tax circumstances, and individual returns account for 22 percent of that total.
The top five largest requirements from the IRS — individual returns, bond tax credits, partnership tax returns, depreciation and amortization, and S corporation tax returns — account for roughly two-thirds of the total man-hours the IRS says the tax code demands.
AAF’s analysis also found that the Treasury’s job of processing tax returns means it by far imposes the largest paperwork burden on people. The Treasury Department reports 7.7 billion in paperwork compliance time, compared to just 600 million hours reported by the Department of Health and Human Services, which is the second-ranked government department in the category.