Kush Desai, DCNF
President Donald Trump claimed that Americans spend “billions and billions of dollars and many hours each year to comply with our ridiculously complex tax code” during a Wednesday speech on tax reform.
Assistance with preparing federal income tax returns is a multi-billion-dollar industry. Trump’s claim that Americans spend “billions and billions” and “many hours” complying with the tax code is true.
Estimates vary of how much time and money Americans spend complying to the U.S. tax code.
According to a 2012 report published by Taxpayer Advocate Service (TAS), an independent office within the Internal Revenue Service (IRS), American individuals and businesses annually spend about 6.1 billion hours filing their taxes. This figure does not include the “millions of additional hours” taxpayers must then spend to respond to subsequent IRS audits or notices.
A 2017 study by the American Action Forum (AAF), a conservative think tank, estimated that American individuals and businesses annually must spend 8.1 billion hours to file their tax returns.
The Tax Foundation, a non-partisan think tank, estimated that American individuals and businesses spent 8.9 billion hours on tax compliance in 2016.
These estimates include the time spent filing taxes not just by individuals but also major corporations and businesses that deal with significant accounting and regulatory complexity. The Tax Foundation estimates that Americans annually spend around 1.35 billion hours in total to file their individual tax returns, which supports Trump’s claim of “many hours” spent complying with the tax code.
Economic cost estimates of tax code compliance also vary considerably, and most also support Trump’s claim of costs amounting to “billions and billions of dollars.”
A 2005 report by the Government Accountability Office cited three independent cost estimates of tax compliance ranging from $67 to $104 billion annually. All three estimates were from the early 2000s.
The aforementioned 2012 TAS report and 2017 AAF analysis both pegged the annual cost of tax compliance at around $170 billion. The Tax Foundation, on the other hand, estimates that tax compliance costs the American economy over $400 billion each year.
These estimates all make use of different data sets from varying time periods and all employ different methodologies to tabulate the economic cost of tax compliance. All of these estimates, nevertheless, support Trump’s claim that Americans spend “billions and billions” in tax compliance.
Filing tax forms and complying with the tax code is an American task that involves a multi-billion dollar tax preparation industry that employs over 70,000people. Trump’s claim that the U.S. tax code costs Americans “many hours” and “billions and billions of dollars” is true.
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