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The high cost of tax compliance
Study says paying taxes costs 22 cents for every dollar collected.
By Steve Hargreaves, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) - The nation's income tax system is so complicated it's costing taxpayers 22 cents for every dollar the government collects, according to a recent report.

Individuals, businesses and non-profits spent over 6 billion hours in 2005 complying with the federal income tax code, the watchdog group the Tax Foundation said Monday.

That represents a cost of $265.1 billion dollars, the group said in a statement. Taxpayers paid $1.2 trillion in federal income taxes in 2005, according to the report.

"The cost of tax compliance has grown tremendously in recent years," said Scott Hodge, president of the Tax Foundation, in a statement.

And the cost of compliance is expected to increase. The statement said the inflation-adjusted figure will likely top $406 billion by 2015.

The Tax Foundation's $265 billion estimate for 2005 did not include other costs associated with tax collection, including operation of the IRS or the amount of money people could have made if they spent those 6 billion hours working on other things.

By comparison, $265 billion is nearly the amount of Wal-Mart's 2004 revenue. Wal-Mart is the world's largest company by revenue.

To get the 6 billion hour figure, Tax Foundation researchers added up the amount of time the IRS estimated it took each filer to complete the tax return -- the IRS is required to keep such records, a Tax Foundation spokesman said.

For the dollar estimate, the Tax Foundation multiplied the amount of hours it took people filing their returns themselves by $23.75, which it said was the national average for wages and benefits. For returns filled by professional accountants, it multiplied the number of hours by $45.37. The Tax Foundation spokesman said about half the returns filled in 2005 were completed by professionals.


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