|
|
The
views expressed
on this page are soley those of the author and do not
necessarily
represent the views of County News Online
|
 |
Photo: Getty Images
The Daily Signal
How Much Your
Taxes Are Really Costing You
David Allen
December 18, 2014
Your taxes are costing you a lot more than you think. In addition to
the direct burden imposed by the taxes themselves, Americans face
compliance costs, as well as costs in the form of revenue loss during
the IRS’ tax collection process. Pete Sepp, president of the National
Taxpayers Union; Jason Fichtner, a senior research fellow at the
Mercatus Center at George Mason University; and Dan Mastromarco, a
partner at the Mastromarco Firm described at an event at the Heritage
Foundation in November how the current tax code imposes costs on
taxpayers in three key areas:
• Accounting Costs. Under the United States’ voluntary compliance tax
system, it is the individual taxpayer’s responsibility to determine his
income tax liability and meet filing requirements. Given the complexity
of the existing tax code, many Americans either purchase tax
preparation software or hire a third party to assist them during this
process. According to a 2013 study by the Mercatus Center, the vast
majority of Americans pay for assistance with the accounting process.
Opportunity costs must also be considered- the Taxpayer Advocate
Servicer found that Americans spent 6.1 billion hours in 2010
completing IRS forms and filing returns. Even if taxpayers’ time were
monetized at the low value of $10 per hour, that still leaves a cost of
$61 billion per year.
Various studies have aggregated the different costs -including time
spent, fees to tax preparers, and other expenses- in order to estimate
the total accounting costs borne by American taxpayers each year.
According to the Mercatus study (from which all data is drawn unless
otherwise referenced), the costs range from $67 billion to $378 billion.
• Tax Gap (revenue loss). The U.S. tax code is extraordinarily long and
complex. According to the Taxpayer Advocate Servicer report, it is
nearly 4 million words long. When printed, the IRS’ guidance explaining
the income tax stands more than 1 foot tall.
As if the task of navigating through countless pages of dense legal
jargon wasn’t formidable enough, consider this: on average, the U.S.
tax code changes every day.
The incomprehensibility of the tax code leads to predictable results:
American taxpayers frequently fail to file returns on time, fail to pay
reported taxes on time, or innocently underreport the amount of tax
they owe. Collectively, this leads to a substantial difference between
taxes owed and taxes paid on time, creating a form of revenue loss
known as the tax gap. The size of the net tax gap is roughly $452
billion (in 2012 dollars).
• Deadweight loss (economic cost). Taxes further impose costs by
distorting economic decision making, namely how individuals choose to
spend and save. Economists call this deadweight loss. It can be thought
of as all of the foregone economic transactions that would have
occurred in the absence of the tax. This includes all of the products
and services not purchased and investments not made.
Deadweight loss is an implicit cost of taxation that slows economic
growth. Although it is more difficult to calculate, estimates of this
lost economic growth range from $148 billion to $609 billion.
Even if we use the lower-end estimates from above, the combined loss
from these three sources is still a staggering $667 billion. When
compared against the IRS’ gross collection amount of $2.855 trillion in
2013, this number indicates that, out of every $100 collected, over $23
was lost. When we bring in the higher-end estimates, the loss soars to
an enormous $1.439 trillion. This equates to roughly $50 being lost for
every $100 collected.
The magnitude of these numbers begs an even larger question: why don’t
people seem to care? In part this is due to the narrow and
disproportionate incidence of the tax burden. 43 percent of individuals
pay no income tax. Of those who do pay income taxes, only one-third
experience the costs by itemizing rather than by taking the standard
deduction. Moreover, when employers withhold taxes from pay the
accounting costs are felt by a much smaller pool of people.
Additionally, the burdens these costs impose are often passed on and
concealed under the guise of lower wages and decreased portfolio
returns, or are unseen altogether in the form of businesses that are
never established.
So how do we reduce the compliance costs of America’s convoluted tax
code? The answer is simple: move to a simpler, more transparent system
based on a consumption tax. A consumption-based tax code would
dramatically reduce complexity and therefore lower accounting costs as
well as the tax gap. It would also reduce deadweight loss. Income taxes
(especially the corporate income tax) discourage saving and investing,
activities that are critical for economic growth. By not penalizing the
production side of the economy, consumption taxes minimize this burden.
According to Curtis Dubay: “Trying to tackle each of these issues
individually ignores the cause of the problem: the broken and outdated
tax system. The right way to fix these problems, and the countless
others with the tax code, is through fundamental tax reform that
applies a low rate to a consumption base (one that doesn’t tax saving
and investment multiple times).”
Read this and other articles at The Daily Signal
|
|
|
|
