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To: freeandfreezing
"There are so many errors of logic and analysis in the article that it is hard to know where to start."

If you think my analysis is full of errors in logic, you should try reading the Tax Foundation's report.

"Every worthwhile analysis of tax compliance cost includes more than the time required to fill in the forms, it also includes the time required to maintain the records required to derive the data needed to fill in the forms, and the time required to learn about the tax laws at a minimum."

I am well aware of the time required to maintain records, and the time to learn about the tax laws (where applicable). As far as the latter, their assumption would apply if each and every year, taxpayers were blank slates who learned nothing from the prior year, or in other words, never filed a return before.

I sampled two types of returns and found the cost estimates grossly overstated. For a person with $20,000 of income and one W-2 Form, who does not itemize deductions, the Tax Foundation says they will incur tax compliance costs of $1,180, or 5.9% of their income. So how much time and effort does it take to store a W-2 form and then enter it on a one page tax form, or take it to a tax preparer? I say no more than $85, but it might not even cost that much for a self-prepared return. So if anything, my estimate is overstated as well.

Also, the Tax Foundation's analysis is not based on money actually spent. That's the biggest flaw in their report. My point is you can't assign a cost to things that are free of charge. Otherwise, you just cost me about $125 for this reply. So in my sampling their estimates are overstated by at least 88.9%, probably more.

"... a taxpayer who operates a small business has to do a lot more than fill in his or her 1040, and automated tax preparation does little to deal with the complexity of business tax returns."

I actually did mention small businesses. A business would incur the same costs of record-keeping even if there were no income taxes, otherwise it would be flying blind and have no idea whether it was profitable or non-profitable, and thus no accountability to its owner(s). The actual costs of record-keeping have declined, just like income tax preparation, due to technological advances.

We know that 109,376,000 out of the 142,449,000 returns that were filed received refunds totaling $328.4 billion, an average of $3,003 each, and that this represents real money. We also know that the Tax Foundation's estimate is merely a statistic based on outdated time estimates multiplied by average annual income, not real dollars actually spent. Thus, the Tax Foundation's numbers don't hold water.

8 posted on 12/25/2011 8:40:00 PM PST by NaturalBornConservative (No contempt prior to investigation!.)
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To: NaturalBornConservative
Also, the Tax Foundation's analysis is not based on money actually spent. That's the biggest flaw in their report. My point is you can't assign a cost to things that are free of charge. Otherwise, you just cost me about $125 for this reply.

You should study some elementary economics. In fact, if you chose to reply to my post instead of do something which you would be compensated for, then the post did cost you what you could have earned elsewhere. Now in the case of the posting, you chose to not earn the money. The same can't be said for the time spent filing a tax return, or keeping the records needed to support the filing.

The concept of opportunity cost is used to measure the cost of alternate uses of resources, including one's time. And yes, if your post took 1/2 hour and your normally earn $250 per hour than your choice to write the post cost you $125.

31 posted on 12/26/2011 6:43:19 PM PST by freeandfreezing
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To: NaturalBornConservative
A business would incur the same costs of record-keeping even if there were no income taxes, otherwise it would be flying blind and have no idea whether it was profitable or non-profitable, and thus no accountability to its owner(s). The actual costs of record-keeping have declined, just like income tax preparation, due to technological advances.

Not really. There is a tremendous difference between the accounting used for operational purposes and the record keeping and accounting used for tax purposes. That's why an 1120 has a whole section where the corporation sets forth the differences between book income and taxable income, for example.

I encourage you to read just the section of the tax code that deals with fixed asset depreciation and tell me if that level of complexity would be required for the owners of a business to know if they were profitable or not.

The actual costs of record keeping have not declined appreciably, although the productivity of accounting professionals has jumped dramatically due to the use of computers. I suspect this is due to the increasing complexity of the records required to support the various regulations imposed on businesses.

32 posted on 12/26/2011 7:12:25 PM PST by freeandfreezing
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To: NaturalBornConservative
I sampled two types of returns and found the cost estimates grossly overstated. For a person with $20,000 of income and one W-2 Form, who does not itemize deductions, the Tax Foundation says they will incur tax compliance costs of $1,180, or 5.9% of their income. So how much time and effort does it take to store a W-2 form and then enter it on a one page tax form, or take it to a tax preparer? I say no more than $85, but it might not even cost that much for a self-prepared return.

You should re-read the report from the Tax Foundation. In particular look at Table 4. The report lists the time for each of the tax returns likely to be filed by an individual, including those likely to be filed by an individual with $20,000 in income. For a 1040EZ, for example, they estimate 3.8 hours for a cost of $152, which is only slightly more than what HR Block charges for a simple return.

As I noted originally, your analysis is based on a faulty understanding of the report itself, along with erroneous logic.

If you want to get a quick look at one element of compliance costs for simple situations you can use the HR Block online tax return cost estimator. Given their success in the market their prices are a useful indicator of the costs incurred, apart from record collection before interaction with their system. Try some different kinds of returns.

34 posted on 12/26/2011 7:52:15 PM PST by freeandfreezing
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