The Efficiency of a Tax System – the Administrative Burden

The Efficiency of a Tax System – the Administrative Burden

Some tax systems are also criticized because of their administrative burden. Individual income taxes, for example, place a large administrative burden on the government, businesses, and individuals. The Internal Revenue Service (IRS) of the United States uses many economic resources to collect taxes and enforce the tax laws. Each American business must devote resources to the calculation of payroll taxes for each worker, the submission of these taxes to the government, and extensive record keeping. Individuals in the United States also devote time and resources to record keeping, tax preparation assistance, and seeking ways to minimize their tax burden. If the United States had a simpler individual income tax structure, Americans might be able to spend less time and money on tax preparation. They might then spend this time and money on things that are more productive and provide a higher standard of living or quality of life. Taxes with a relatively high administrative burden are less efficient than those with a relatively low administrative burden.

In 1997, the Congressional majority leader Richard K. Armey, a Republican from Texas, announced that Americans spend 5.4 billion hours a year preparing income tax returns at a total cost of $200 billion, or $700 for every man, woman and child. During his 18 years in Congress, Rep. Armey was a strong advocate for tax reform.