How much money is wasted by the IRS on tax collection?

On Behalf of | Nov 14, 2014 | Tax Controversies

An old business adage that’s still popular today tells us that “it takes money to make money.” This most often refers to the costs businesses incur in overhead, advertising and other expenses before they can bring in revenue. But does the adage apply to the U.S. government as well?

Most of us never think about it, but it does actually cost money for the Internal Revenue Service to collect taxes. How much money? According to the IRS, it spends only about 41 cents per every $100 it collects. According to one economics attorney, however, the true cost of tax collection is about $45 for every $100, or 45 percent of total revenue.

This figure was given by a lawyer named Dan Mastromarco, whose professional experience includes being a trial attorney for the Department of Justice’s tax division. Mastromarco notes that the U.S. tax code, which is 4 million words long, is so complex that the IRS can’t even fully understand it. The code’s complexity leads to incredibly high compliance costs, he says.

Speaking at a Heritage Foundation event on tax compliance, Mastromarco noted that “We really haven’t made this very clear to the American people. They don’t see it. They don’t feel it. They don’t understand what this equates to — this is a huge amount of money. This is a good year of economic growth. This is beyond the GDP of many of the world’s countries.”

Unfortunately, tax reform is one of those political issues that is frequently discussed but rarely enacted. When changes are made, they usually add complexity to the tax code rather than simplify it.

Until or unless major reforms are made, Americans can expect to remain frustrated and confused about taxes. Thankfully, an experienced tax attorney can help you with any number of compliance and legal issues related to taxes.

Source: The Daily Caller, “Billions Of Taxpayer Dollars Are Spent … Collecting Taxes,” Rachel Stoltzfoos, Nov. 14, 2014