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How much time did it take you -- or your tax preparer -- to complete your taxes last year? A couple of hours? A few days?
How about 6 billion hours!
According to Georgia Congressman Tom Price, Americans spend that vast amount of time complying with the tax code each year. Not only that, he said, but the cost to comply with the tax code is also astronomical.
In a couple of Twitter posts recently, Price, a Republican from Roswell, used the eye-popping figures to push for an overhaul of the tax code.
"Americans spend $160+ billion per yr complying with the tax code. Visit http://TaxReform.gov & share your ideas to fix a broken tax code," one Price post said.
It was followed by a second post:: "Americans spend 6 billion hrs per yr complying with the tax code. Follow @simplertaxes & join the fight for a simpler, pro-growth tax code."
We know taxes and the federal tax code are tough and take time to understand. But 6 billion hours and $160 billion for compliance? Those numbers seemed extreme, and we decided to check them out.
Tax reform has become a talking point that almost everyone can agree on, sort of like the declaration that ice cream is yummy. Politicos on both sides of the aisle have called for an overhaul of a tax system that many say is too complex and onerous for businesses and individuals. The broad goal is to simplify the code by eliminating or reducing tax breaks and using the additional revenue to lower tax rates across the board.
Price is a senior member of the House Ways and Means Committee, the chief tax-writing committee in the House. He has been part of a Republican bloc that has argued for overhauling the tax code to not only lower tax rates but also broaden the tax base and eliminate loopholes.
To illustrate the obstacle that the tax code has become, Price and several other politicos have used the figures the congressman used in his Twitter posts.
For example, PolitiFact Oregon checked similar statements made by U.S. Sen. Ron Wyden, D-Ore., who used the figures to promote his plan for simplifying the tax code. Wyden’s statement was rated True.
The numbers cited by Price and Wyden can be traced to the Internal Revenue Service’s independent ombudsman, known as the National Taxpayer Advocate. The ombudsman, currently Nina E. Olson, is described as the voice of the taxpayer before the IRS and Congress. Olson leads the Taxpayer Advocate Service, an independent organization within the IRS, in helping taxpayers resolve problems with the IRS, as well as working for change in the agency and in the federal tax code.
In a 2010 annual report to Congress, Olson said that taxpayers -- individuals and corporations -- spend about $163 billion annually to comply with the tax code, a sum equal to 11 percent of all the revenue the federal government collected. The cost of compliance was based on 2008 figures.
The NTA says there is no correct methodology for quantifying the costs of compliance with the tax code. The $163 billion figure is based on what was spent on personal and business income taxes (5.6 billion hours) multiplied by the average hourly cost of a civilian employee ($29.18, according to the Bureau of Labor Statistics). The calculations did not include time spent complying with requirements for employment, estate and gift, excise, and exempt organization taxes. The annual compliance cost estimate based on 2010 requirements grew to $168 billion, according to the NTA’s 2012 annual report.
That 2012 annual report found that individual taxpayers and businesses spend about 6.1 billion hours a year complying with the filing requirements of the Internal Revenue code. That figure does not include millions of additional hours taxpayers spend responding to IRS notices or audits.
Olson’s office arrived at that figure by multiplying the number of copies of each form filed for tax year 2010 by the average amount of time the IRS estimated it took to complete each form. The IRS estimates the average time burden for all taxpayers is 13 hours, with an average cost of $210 per return. This average includes four hours for actual tax form completion, six hours for recordkeeping, two more hours for tax planning and a miscellaneous hour.
The authors of the NTA report admit that the figure for time spent complying with the tax code is difficult to accurately measure because the IRS has not kept up with technology improvements that have made the process more efficient.
Since 2001, Olson’s office has found, Congress has made nearly 5,000 changes to the tax code, an average of more than one a day, and the code has reached almost 4 million words.
"Individual taxpayers find return preparation so overwhelming that few do it on their own. Nearly 60 percent of taxpayers hire paid preparers, and another 30 percent rely on commercial software, with leading software packages costing $50 or more," Olson wrote. "In other words, taxpayers must spend money just to figure out how much money they owe."
If tax compliance were an industry, Olson said, "it would be one of the largest in the United States."
To sum up, U.S. Rep Tom Price said Americans are spending more than $160 billion and 6 billion hours each year complying with the federal tax code. The figures have been repeated by multiple interests seeking a comprehensive overhaul of the tax code.
Prices’ figures, used in two Twitter posts, can be traced to the IRS’ independent ombudsman. Those figures, while difficult to quantify, have become the accepted standard for calculating compliance time and costs.
We rate Price’s claim True.
Twitter post, U.S. Rep. Tom Price, Aug. 14, 2013
PolitiFact Oregon, "Sen. Ron Wyden says Americans spend more than 6 billion hours and $160 billion to comply with federal tax laws," Charles Pope, Feb. 5, 2011
Internal Revenue Service, "National Taxpayer Advocate delivers annual report to Congress," Jan. 9, 2013
Tax Foundation, "A stark reminder of the excessive cost of complying with the tax code," Ellen Kant, Jan. 15, 2013
CapitolWatch, "Capitol Watch calls on Congress to simplify tax code," July 3, 2013
Phone interview, Maryclaire Ramsey, spokeswoman, National Taxpayer Advocate, Sept. 3, 2013
"Heading off a Massive Hike," U.S. Reps. Scott Tipton and Tom Price, Aug. 28, 2012
TaxReform.gov, Comprehensive Tax Reform: Building a tax code for the 21st Century
Denver Post, Associated Press report, "Burgers, beers and tax reform: Democrat, Republican work together," Stephen Ohlemacher, July 15, 2013
Internal Revenue Service notices, Form 1040 (2012), Estimate of taxpayer burden
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