Did you ever consider that perhaps the 2011 estimate includes an increase in the number of returns? Scaling the cost per return by the increase in total cost is only logical if the number of returns remains constant. But the number of filed returns in 2011 is unlikely to be equal to the number filed in 2004. So your analysis is flawed.
Moreover, you don't seem to understand that compliance costs are independent of the amount of tax due, so it is very possible for the compliance cost for a filer is equal to or exceeds the amount of tax due by a large margin. This makes your percentage based analysis pointless and illogical.
For example, consider a FUTA return for one employee where all state unemployment was paid. If you are experienced in the business you know what the tax is. Can a customer hire you to file a 940 and four quarterly state UI returns for less than $100? I doubt it. Oh, and for the same $100 (actually $56 if my memory is working well) can you do the payroll record keeping too?
From a percentage point of view what is the percentage for a filing where no tax is due? Pretty large, right? Lets take a zero liability 1120. What percent of $0.00 is say $3500?
You may have filled in a lot of tax forms, but your estimates of tax compliance costs are unlikely to be correct based on the methods you are apparently using for your analysis. Your estimate is also inconsistent with even a quick estimate based on published industry information.
About 129 million individual tax returns are filed.
A typical cost paid by a taxpayer for a personal return is about $185. This is a rough indication of the market price, or the point where consumers decide their own expense would be greater than the service supplier's price.
This rough estimate of just personal return filing costs - not recordkeeping, or time spent going to and from the tax preparer, etc. yields a cost of $24 billion. And we haven't even touched on all the accounting and filing costs related to business taxes, employment taxes, etc.
Under your model of the industry the total cost of all business tax preparation, accounting, and related legal services, and hence the income to everyone in the country working in those industries is around $16 billion. That means that the 1,762,000 accountants in the country have an average yearly salary of about $9000. Do you think that is even close to true? Or are they more likely to make ten times as much?
You should direct that question to the Tax Foundation, who themselves admit that a 6 year projection is pretty much bogus (see 1st link).
"...you don't seem to understand that compliance costs are independent of the amount of tax due"
Really? You mean like where it costs $85 to do a return containing -0- tax but a combination of refundable tax credits resulting in a refund of $3,003 or more? Or where a Corporation would owe taxes had it not filed a return and taken advantage of Section 179 or Bonus Depreciation, which had it not taken advantage of would have resulted in a huge liability? It works both ways.
"Can a customer hire you to file a 940 and four quarterly state UI returns for less than $100?"
No, because I would never be foolish enough to prepare a stand alone 940, or just quarterly state UI returns. I only provide full service payroll including all quarterly and annual filings, and the rate is based on the number of employees. But I also only offer payroll services in conjumction with monthly or quarterly accounting services. So I don't charge per se for payroll tax forms based on some flat rate, but rather as part of an overall package based on various factors. The less work, the lower the fee.
"From a percentage point of view what is the percentage for a filing where no tax is due?"
What is the percentage for filing where no tax is due, but would have been due had one not filed and taken certain credits? What is the percentage for filing where a huge refund over and above the amount of tax withheld is received for a nominal fee? What is the cost of not filing at all in terms of trying to get credit to buy a home or car in the future?
Stating that it takes everyone the same amount of time to prepare tax forms at $35 per hour no matter what, based on archaic methods, is the problem. It's like saying every time I wash my clothes I have to re-read the washing machine manual, connect all the hoses, and that all this time costs me $35 per hour. In other words, no learning curve, no economies of scale, etc ...
"That means that the 1,762,000 accountants in the country have an average yearly salary of about $9000."
Isn't that about it would be, if it took as long to complete a return as the Tax Foundation surmises? But seriously, you must be assuming that every accountant and attorney in the country does income taxes. I wasn't even remotely involved with taxes when I was in corporate accounting. There was accounts payable, accounts receivable, EDI, cost accounting, SEC compliance, reporting for credit purposes, reports to management and shareholders, and a host of other tasks completely unrelated to taxes. There also aren't many attorneys in the tax industry as most that I know specialize in criminal, civil, immigration and such. So that's a stretch, and no where close to what I said.
But I guess it's perfectly reasonable to assume that a person who makes $8 per hour would be able to count the time it would take to do his own return back in the stone ages, at $35 to $56 per hour. Nevermind that IRS free-file is out there at no charge.
According to the last link in my post (where I said, I would be more concerned about real and verifiable stuff), out of the 98.7 million returns that were e-filed in 2010, 63.8 million were filed by professionals, and 34.8 million were self-prepared. There is also IRS Free-File where many people have been able to efile their own return at no charge, if they meet certain criteria. So in this day and age, where the TF says it's costing that person making less than $20K -- $1,180 or more, it may not be costing them a dime. Many also get assistance from volunteers at no charge.
Maybe I'll conduct my own study in the future, but my point is that their estimate is way off the mark. That's where I stand, and there are many who agree. "That's the best we can do." ~ The tax Foundation.
No, under my theory, the amount actually paid out, in real dollars actually spent, is around $44.4 billion. Since 2010, everyone who prepares tax returns for a fee, must now register for a PTIN with the IRS, including office assistants who may not actually prepare returns. So we know there are around 900,000 in the tax preparation industry (awaiting for latest figures). Thus, under my theory the average pay for tax preparers would be around $49,333.33. However, the average salary for tax preparers is actually $36,000. Meanwhile, the average seasonal H&R Block preparer makes $9.67 per hour, or slightly less than $20K per year.
As far as small business record keeping, we do the bulk of that here. Only about 4% of my business clients actually do their own accounting with QuickBooks. Most have better things to do, like running their companies. For another small percentage, from my perspective, I would hardly call throwing every last receipt they can find into a shoe box, and dropping it off on my doorstep, a huge drain of time and resources. It was like that 30 years ago, and it's still the same today.
Bottom Line: $44.4 billion is reasonable; $400 billion is outrageous.