Tax Code Complexity Now Costs U.S. Economy up to $1 Trillion Annually

Sent to us by Tax Revolutionn Institute.

Tax Revolution Institute – by Philip Schlosser

74,608 pages, 2.4 million words.

That is the present size of Title 26 of the U.S. Code, i.e. the “Internal Revenue Code.” One would think this would be nearly impossible for an enterprise wielding an army of tax experts to absorb, let alone the average taxpayer. However, it doesn’t stop there.  

The IRS has added an additional 7.7 million words of tax regulations designed to clarify what the original 2.4 million words mean. You can’t make this stuff up. Add 60,000 pages of tax-related case law essential to accountants and tax lawyers, and the burden is revealed.

More than 10 million words with a hidden annual compliance cost of up to $1 trillion. This is what Title 26 of the U.S. code and the Federal Register is estimated to cost the United States economy each year.


Data aggregated by Philip D. Schlosser. Design by Philip D. Schlosser and Andrew Hawks.

To put this into perspective, the Encyclopedia Britannica — 32 volumes that contain the general knowledge of man — is 44 million words in length. This means that in order to understand the federal tax code and its supplementary regulations in their entirety, one would have to absorb highly complex tax language that is nearly one quarter the length of the entire Encyclopedia Britannica.

Indeed, Albert Einstein said it best when he noted that “the hardest thing in the world to understand is the income tax.

As one can ascertain from the positive trend in Figure 1, the complexity of the tax code and its supplementary regulations is continuing to climb at an alarming rate. This is exacerbated by growing layers of provisional carve-outs, loopholes, and special privileges.

Estimating Accounting Costs

Using data from the Office of Information and Regulatory Affairs and U.S. Bureau of Labor Statistics, the Tax Foundation estimates that it will take Americans more than “8.9 billion hours” per year to ensure compliance with Title 26 of the U.S. tax code and Federal Register. This is equivalent to 4.3 million Americans doing nothing other than working on tax compliance for the entire year in 2016.

Taken together, data from the Office of Information and Regulatory Affairs and U.S. Bureau of Labor Statistics reveal that tax compliance will cost the U.S. economy roughly $409 billion in 2016. In 2011, the Laffer Center estimated said cost at $431.1 billion.

In other words, the annual cost of complying with the tax code is equivalent to the annual GDP of 36 states combined. Furthermore, these numbers basically capture explicit accounting costs: what happens when we thoroughly estimate our economic costs as well?

Economic costs include those accounting costs (i.e. the direct price tag of carrying out the actions) and our opportunity cost (i.e. the amount of money that could have been made via employing the same capital on other economic objectives). There is no doubt that firms would use 8.9 billion labor hours per year on far more efficient tasks than attempting to comply with over 10 million words of tax rules.

Estimating Economic Costs

A prominent study published by the Mercatus Center of George Mason University surveyed the economic literature to document the hidden costs of the U.S. tax system. The study looked beyond the explicit accounting costs of tax compliance, measuring also the hidden costs of compliance with taxation — ultimately arriving at an estimate for foregone economic growth.

Beyond the evident opportunity costs that are associated with accounting, the tax code also targets political and social ends through special tax provisions, which come at a price. Structural patterns are altered via special-interest carve-outs; market competition is grossly distorted; additional lobbyists are hired to rent-seek and protect tax advantages, and so on. This magnifies our economic costs.

Mercatus estimates that the hidden costs of tax compliance — the time and money spent on tax compliance coupled with the opportunity cost of foregone economic growth — range from $215 billion to $987 billion per year.

Since the Mercatus study was published, the Office of Information and Regulatory Affairs has updated its estimate for annual hours expended on tax compliance from 6.1 billion to 8.9 billion, which would almost certainly increase Mercatus’s estimates. For example, a static adjustment to accounting costs alone would already raise our top estimate from $987 billion to north of $1 trillion per year.

We Can Do Better

A recent Wallet Hub poll has revealed that 75 percent of Americans believe the federal tax code is too complex. A similar Pew poll registered Americans’ dissatisfaction with the federal tax code at 72 percent, while the last Tax Foundation poll found a staggering 82 percent of the public in favor of a “complete overhaul” of the entire federal tax system. Even the U.S. Treasury Department has admitted that “the complexity of the U.S. tax code makes the tax law too difficult for taxpayers to understand and for the IRS to administer.”

Enough is enough; it’s time for a change.

Tax Revolution Institute

7 thoughts on “Tax Code Complexity Now Costs U.S. Economy up to $1 Trillion Annually

  1. When in comes to income tax, if you don’t earn your livlihood by working for a federal entity you don’t owe taxes. Real simple. Pete Hendrickson cracked the over 3 million word IRS code, boiled it down for you and I, so now we don’t have to be ignorant when it comes to who owes income tax. Self asses your self every April, get ALL your money you are allowing, through ignorance or some other retarded reason, to be confiscated from you every year.

    1. Yet they will send their SWAT teams after you and harass you forever or outright jail you regardless. The whole thing is ILLEGAL to start with, they never had the power to do any of this and all of it only proves why this is going to either end up with a shooting war or people just giving in. A shooting war is the only way to make it stop assuming we kill every last one of them and their families AND children, we must wipe the slate clean.

      1. They send swat teams after you when you fail to re-butt the assumption that you have privileged federally connected money that was earned. Not filing and rebutting when you have signed a w-2 or 1099 brings the killing squad, no doubt. The form filed in April provides every American to re-butt the assumption by way of self assessing the presumption that you worked in the public sector. When one signs a w-2 or 1099 to work somewhere, of which most payees/employers require one to sign, because they are ignorant and continue to act as an agent for the fed. govt., although this is changing because people are educating themselves to the truth and facts of who owes fed. and state income tax, the individual simply files properly, re-butts the assumption, and ALL monies are returned, period. Look, billions, yes billions have been returned to individuals that are no longer ignorant of the law, so you tell me if the swat has showed up to these peoples house. No, they have not. You may not be filing anymore, but for anyone you know that is, send them to and provide them the opportunity to get educated.

      2. Also, check out Joe Black, Spikes co-host on Hammering the New World Order, and also the Liberty Tree TV site admin. show you in black and white the return he received because he filed properly.

  2. There is an error in the first line.
    There is the “Internal Revenue Code” which is the law of the IRS.
    There is “United States Code: Title 26” which is the law of the United States.
    The IRS only refers to the “Internal Revenue code.
    The content is identical but the titles are different.
    Are they different laws?
    Are they different types of laws?

    If I gave you two books with the same content but had different titles on the cover, are they Identical?

    How about if the employee hand books are identical for Wallyworld and Playmart. Say, you work for Playmart and are called in for disciplinary reasons, can Playmart use the employee manual titled Wallyworld to claim you violated employee rules?

    The TreasuryDepartment has a “Tax Division” and the IRS.
    Why the redundancy?

  3. “The actual objects of the actual income tax lawfully in place in America are gains from the exercise of federal privilege. Gains from the exercise of federal privilege means, to put it bluntly, private benefits enjoyed from the use of public resources. Such privileges include ownership and profitable operation of national banks, subsidized railroads and federal land exploitation, certain armament industries, enjoyment of public office, certain categories of bond investments, and other specially-advantaged situations.”

    “It’s not much fun being tick-food, is it?

    SO HERE’S A DISTURBING THOUGHT FOR EVERYONE who continues to pay the “ignorance tax”– that is, an unapportioned tax on their unprivileged earnings being paid under the erroneous belief that the 16th Amendment authorized such a rule-defying capitation: You’re letting yourself be a tool and a victim of the “1%”, feeding them more wealth than they otherwise would ever have– entirely at your expense, while simultaneously sparing them from their proper share of a tax which is designed to fall on them alone.

    “Here’s another disturbing thought: The successful implantation of the myth of a Constitutionally-authorized unapportioned capitation– especially in light of the apparent contradiction that suggests with the perfectly clear apportionment requirements found in Article 1– has led many of today’s Americans to see the Constitution as fundamentally flawed. What a windfall this is to those who have promoted the unapportioned-capitation-authority myth!

    These promoters had chafed under the restraints of the Constitution for 140 years before breaking free 75 years ago or so. Seeing even pundits who claim to be classic liberals (libertarians) now disparage and denounce what Gladstone described as “the most wonderful work ever struck off at a given time by the brain and purpose of man,” and what did indeed bind down the government by its chains effectively until the myth took hold, must send shivers of delight down the scoundrels’ backs.”

    “The fact is, the income tax is not only a Constitutional tax, it is also a very desirable tax. Applied in strict adherence to its statutory design, the income tax is benignly-limited in scope. It is also a fit mechanism by which those who make money from the exploitation of public resources return to the common purse a portion of their private profits.”

  4. I posted a comment to this article at the author’s site: Tax Revolution Institute. Actually I asked him a few probing questions which he has as yet not responded to. I’ll copy it here for the edification of the readers of From the Trenches:

    Hey Philip, couple questions for you? The very revealing graph only starts at 1913. What happened to all the internal revenue statutes, which include the income tax, that first started in 1862? In fact and as the graph reveals it wasn’t until all the internal revenue statutes were codified (restated) by subject matter that the problem of which you complain began. If you look at the preamble of the 1939 IRC it tells the curious researcher that the laws being codified start with the 1862 statutes and end with the 1938 statutes. The derivation tables tell us even more: that the majority of the statutes being codified existed before 1913. So would it not be prudent, if you truely desire to understand the tax code, and specifically the income tax, to begin your study with the 1862 Salary and Income Duty? In other words study the original statement of statutory law in order to understand the restatement of that very same body of statutory law. Should you find the courage to do so, what you’ll find is that the reaching-to-the-sky pile of legalese, known as the IRC, is merely a distraction or impediment to prevent you from understanding the truth about the income tax. That process of reeducation best begins with this article:

    My complements to Katie for also standing up on behalf of the truth about the income tax. She has done her homework, as her comments indicate. She has overcome the dreaded fear of the IRS that has been cultivated since the 1940’s to discourage we peons from discovering that the truth about the income tax is hiding in plain sight. Take advantage of the illuminating links she has provided to learn the truth for yourself

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