Can the IRS Scandal Shake the Dust Out of a Toxic Tax Code?
To put it lightly, the U.S. tax code has become toxic. The standing document has been edited 5,000 times over the past dozen or so years and is nearly 4 million words long, or “10 times the size of the Bible with none of the good news,” as Representative David Camp (R-Mich.) would put it.
In 2011, the Laffer Center for Supply-Side Economics published a paper arguing that because of the gross complexity of the tax code, the costs incurred by taxpayers are actually far greater than the net sum that the government collects. The paper outlines how and why “individuals and businesses as taxpayers must pay substantially more than $1 in order for government beneficiaries to receive $1 of federal government services.”
Using 2010 data, the Laffer Center calculated that “taxpayers pay $431.1 billion annually, or 30 percent of total income taxes collected, just to comply with and administer the U.S. tax system.” The primary component of that calculation includes the dollar value of the 6.1 billion hours (worth $377.9 billion) spent by individuals and businesses in complying with filing requirements. In other words, that’s a $378.9 billion cost to the U.S. economy in time spent doing paperwork alone.
The Laffer Center report necessarily makes some estimates in order to reach its conclusions, but it decides not to even take a stab at quantifying what it considers to be the highest cost of the byzantine U.S. tax system: the changes in business and taxpayer behavior that are the result of awkward and sometimes misguided tax incentives.