The Cost of the US Tax Code

So, how much does our tax code cost? Every year around tax time multiple stories come out citing the number of hours Americans spend completing their taxes and how much this costs the economy. I don’t know that the activity costs the economy anything unless people are preparing their returns at work when they should be doing you know…work.

But what is never discussed is the true cost of the tax code and the billions of dollars wasted complying with it.

According to the BLS there were ~69,000 people employed as “tax examiners and collectors, and revenue agents” with an average salary of $54,830 or $3,783,270,000 per year. These job titles indicate that these are government employees and not private sector employees.

~57,000 people are employed as “tax preparers” at an average annual salary of $37,060 or $2,112,420,000 per year.

There were 1,072,490 people employed as Accountants and Auditors at an average salary of $68,960. Now, not all of these people are engaged in tax work so let’s conservatively assume that 15% are engaged in tax activities full time, so that’s another $11,093,836,560 per year.

H&R Block employs 107,200 people according to hoovers.com with total annual revenues of $3,778,300,000. Let’s assume that with a flat tax that their revenues would approach zero. What else would they have to do?

Jackson Hewitt employees 6,005 people and earned $248,000,000 in 2009. Again, with a flat tax, assume zero.

According to Intuit Corp they sold 10,970,000 units (CDs and online) of their popular tax preparation software, TurboTax. I paid $35 dollars to file federal and state with TurboTax so Intuit’s revenues from TurboTax were approximately $383,950,000.

I work for a Fortune 5 company and our US tax department alone is over 200 people. That’s 200 people employed as overhead to comply with the federal tax code at a cost of $30,000,000. Multiply this across hundreds of thousands of businesses large and small and you will exceed the totals of the above figures of $21,181,776,560 and 400,000 people. Money and time that could be better spent on actual productive activities.

My numbers aren’t complete and I can only guess as to the undercount in both dollars and employees that are tied up in complying with our tax code and I can’t even begin to estimate the opportunity cost of tax code compliance. But I think you get the picture as to just how much our government costs us each year. The tax code is a federal jobs program in itself.