The Hidden Costs of Tax Compliance

Mercatus Published Research, Forthcoming

21 Pages Posted: 28 May 2013

Date Written: May 20, 2013

Abstract

Lawmakers have long used the tax code for purposes far beyond simply collecting revenue to fund the federal government. Through the insertion of specialized tax provisions, the tax code is used to achieve policy and political aims as well. But these special provisions come at a price: economic growth is foregone, higher accounting costs are incurred, more lobbyists are hired to protect tax advantages, and revenue is lost as a result of collection inefficiencies. We estimate that hidden costs of tax compliance range from $215 billion to $987 billion annually, and that part of the $452 billion revenue gap in 2012 unreported taxes was the result of tax code complexity. We provide policy recommendations based on lessons from the Russia flat tax reforms and the Tax Reform Act of 1986.

Keywords: federal taxes, tax code complexity, Tax Reform Act of 1986, Internal Revenue Service, revenue gap, economic efficiency, lobbying costs, accounting costs

JEL Classification: D61, E62, H21, H26

Suggested Citation

Fichtner, Jason J. and Feldman, Jacob M., The Hidden Costs of Tax Compliance (May 20, 2013). Mercatus Published Research, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2267971 or http://dx.doi.org/10.2139/ssrn.2267971

Jason J. Fichtner (Contact Author)

Johns Hopkins University - SAIS ( email )

1717 Massachusetts Avenue NW
Washington DC, DC 20036
United States

HOME PAGE: http://https://sites.google.com/site/jasonjfichtner/

Jacob M. Feldman

Independent

No Address Available

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