The additional costs of Federal Income Taxes

Mark Perry adds them up at American Enterprise.

Americans spent almost 4 billion hours filling out tax forms last year, according to the National Taxpayers Union, and that number’s likely to be even higher this year. At the current average hourly wage of $18.90, the amount of time spent by Americans on tax preparation is worth about $75 billion, equivalent to the entire annual Gross State Product of New Mexico. Add another $30 billion that the IRS estimates taxpayers spend out-of-pocket on tax preparation (tax software, tax preparers, accountants, etc.), and the total annual cost of tax compliance equals the state of Iowa’s entire annual output.

The compliance burden of income tax preparation for Americans has risen significantly over time as a direct result of the increasing complexity of the U.S. tax code. For example, just the instructions for the 2009 Form 1040 total a record-high 175 pages, more than double the 84 pages of instruction in 1995, and more than 10 times greater than the 17 pages in 1965 (source).

My total cost is ~$80 for Turbo Tax and 5 hours of my time to prepare taxes, and a couple of hours a month keeping the required records, conservatively 20 hours.  That’s more than a half a week of productivity, which for me is about $50 an hour (my wife’s is higher).  The cost to me on top of the $50K+ I pay in Federal and State income taxes is more than $1300.  Can you imagine the cost of an audit, where you must prove your own innocence?

I wonder if anyone in Congress considers this cost to the country as they continue to add complexity to the tax code on top of raising tax rates.  Somehow I doubt it.


About Paul Stagg

Husband, lifter, MBA in Baltimore, MD. Will post about Powerlifting, politics, Classical Liberalism, Economics, building wealth, self improvement, productivity, heavy music, wine, food, beer, and almost anything else. View all posts by Paul Stagg

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