February 15, 2011

Americans do NOT spend $163 billion Preparing Taxes

Last month I wrote that Americans do NOT spend 6 billion hours on their taxes  I explained how I think the claim that we spend 6 billion hours on taxes is, well ridiculous.   We'll call this article part 2 in the series.  

The other day I was reading Businessweek magazine at home for fun and profit and I came across this article Taxation Without Complication.    The article makes the argument that taxes are too complex.  (I'm sure that the imaginary people who think that taxes are too simple are now put in their place!)    Anyway ... In the article they throw this in :

"Olson, the national taxpayer advocate who runs an independent unit within the IRS, estimates the cost of preparing returns and coping with tax laws at $163 billion in 2008—11 percent of income tax receipts."

I'm sorry but am I the only one that thinks this kind of claim is totally ridiculous?  This Olson lady sure likes to make up ridiculously big and unbelievable numbers.   Next she'll be telling us that shipping all our jobs to China is saving us $18 trillion a year or that NAFTA has raised our GDP 200% or that Matthew Mcconaughey won 1 Oscar.    The $163 billion figure is another example of a Numerical Fiction.

To illustrate why I think that number is not even close to reality lets look at this a few ways.   

1. $525 per person.   There are roughly 310 million people in the USA.    $163 billion would work out to about $525 per person.   So if we spent $163 billion then every man woman and child in the nation spends $525 a year on average to handle their taxes.   Whats Turbo Tax cost like $30 or $50?

2.  $1,147 per tax form.   In 2008 there were a total of 142 million tax returns filed.   If we spent $163 billion a year total then that would work out to $1,147 average per tax filer.   Wow, that would hire a lot of CPA time.

3.  All the accountants in the nation.    There are 1.1 million accountants and auditors in the country.   They make mean wages of about $67k a year.  Total wages for all the accountants would be about $73.7 billion.    Many accountants do various other things.

4.  If H&R Block did all our taxes.     H&R block does the taxes for 1 in 7 Americans.   H&R Block's total annual revenue is around $4 billion.    If H&R Block did the taxes for all Americans then the cost would be about $28 billion and we'd be paying too much.

Lets just look at the cost of doing taxes based on the last two points:
If we hired every single accountant in the nation to do nothing but taxes = $73 billion
If we had H&R Block do all our taxes = $28 billion

Compare those two options to the $163 billion claim.   We could pay every accountant in the nation to do nothing but taxes and then pay H&R Block to check their work twice and still not spend $163 billion.    It doesn't add up.

Bottom Line:   We don't spend $163 billion preparing our taxes.

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