According to Scott Moody of the Tax Foundation, a Washington
think tank, the cost of complying with the federal income tax will
reach $140 billion in 2001.
That's about 12 cents for every dollar collected. Moody argues
that the only way to reduce these high compliance costs is for
Congress to reduce the complexity of the current tax system.
Moody, senior economist at the Tax Foundation, presented his
research in recent testimony before the U.S. House Ways and Means
Committee. He told lawmakers that tax complexity is largely due to
congressional changes and expansions of the Internal Revenue Code.
In 1954, there were 103 code sections that dealt with the income
tax, but now there are 725 sections -- a 604 percent increase.
Indeed, the federal income tax code and regulations have grown to a
staggering 6,929,000 words -- an increase of 831 percent since 1955.
(The full text of Moody's testimony can be found at
Moody noted that Congress has passed 32 major tax laws since
1954. That's about one new tax law every 1.4 years. In particular,
Moody lamented the "bewildering complexities that were introduced by
the tax enactments of the 1980s."
For example, the so-called Tax Reform Act of 1986 brought
unprecedented complexities via the alternative minimum tax,
inventory capitalization rules, and foreign income rules.
The growth and instability of the tax code create three kinds of
costs for taxpayers. The first type of cost is for tax planning --
for all the economic decisions that people and firms make to
minimize their tax liabilities. The second type of cost is for
compliance -- for all the record-keeping, education, and form
preparation that is required to file income tax returns. The third
type of cost is for litigation -- for the cost of the Internal
Revenue Service, the Tax Court, and the legal costs that taxpayers
incur while dealing with these two government institutions.
Of these three costs, Moody estimated only the second -- the cost
of tax compliance. All in all, Moody estimated that it will take
Americans some 4.6 billion hours this year to comply with the
federal income tax laws, and that translates into a tax compliance
cost of roughly $140 billion in lost taxpayer effort. That's "more
than work in the auto industry, the computer manufacturing industry,
the airline manufacturing industry, and the steel industry
combined," he said. …