Tuesday, January 18, 2011

"WWBS"--What Would Bastiat Say" about the tax code and the cost to comply with it...I think I know...

I am not sure if this excerpt below violates Frederic Bastiat's conclusion in "The Broken Window Fallacy", Destruction is not profitable", but it sure is a good example of the "seen and the unseen".  The tax code is so complex that it requires a whole tax preparation industry to help people do their civic duty to pay taxes.  Yes, this creates lots of jobs, but ONLY because the IRS, with Congressional oversight, has aided and abetted it.  The tax preparation industry "rent-seeks" at the expense of the taxpayer.  This industry only exists with the help of government. That is the seen. The unseen is what the incredible amount of money that goes to this industry COULD be doing instead.  The unseen is what we are giving up in order to comply with the tax code.  We have destroyed (ok, maybe that is extreme--how about limited) future opportunities that will never be realized because of present policy.  Something to think about...

""Each year America’s labyrinthine tax code costs taxpayers billions, in dollars, hours and headaches. But it also has one giant beneficiary: America’s tax preparation industry.


The National Taxpayer Advocate’s latest annual report to Congress argues that “the most serious problem facing taxpayers” is not that taxes are too high, or that tax revenues fall so short of government spending, but that the Internal Revenue Code is just too dang “complex.” A convoluted tax code sucks up a huge amount of time and resources from the nation’s taxpayers, the report says.


Among the report’s key findings:

U.S. taxpayers and businesses spend about 6.1 billion hours a year complying with the filing requirements of the Internal Revenue Code…


Compliance costs are huge both in absolute terms and relative to the amount of tax revenue collected. Based on Bureau of Labor Statistics data on the hourly cost of an employee, [the Taxpayer Advocate Service] estimates that the costs of complying with the individual and corporate income tax requirements for 2008 amounted to $163 billion – or a staggering 11 percent of aggregate income tax receipts…


Individual taxpayers find return preparation so overwhelming that about 60 percent now pay preparers to do it for them. Among unincorporated business taxpayers, the figure rises to about 71 percent. An additional 29 percent of individual taxpayers use tax software to help them prepare their returns, with leading software packages costing $50 or more. IRS researchers estimate the monetary compliance burden of the median individual taxpayer (as measured by income) rose from $220 in 2000 to $258 in 2007, an increase of 17 percent....""From Economix Blog
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