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1 Arhur P. Hall, Compliance Costs of Alternative Tax Systems II 1 (1996)

handle is hein.taxfoundation/taxfaaqc0001 and id is 1 raw text is: TAX % FOUNDATION March 1996 Compliance Costs of Alternative Tax Systems II House Ways & Means Committee Testimony By Artbur P. Hall, Ph.D. The following testimony was presented Senior Economist on March 20, 1996, by Dr. Hall before the Tax Foundation House Ways & Means Committee. The Tax Foundation estimates that complying with the entire federal tax system will cost Americans almost $225 billion in 1996. The rules and regulations for the federal income tax alone account for approximately $157 billion of this cost. The cost of compliance, which adds nothing to national output, is tantamount to a tax surcharge on all taxpayers. One way to The complexity of systems that directly tax people and businesses - like the current income tax, the Flat Tax, and the USA Tax System - is almost wholly related to tax base questions, that is, questions or uncertainty about the timing or definition of taxable transactions. comprehend the magnitude - and economic waste - of the $157 billion federal income tax surcharge is to imagine wantonly destroying every vehicle produced by the Ford Motor Company and more than one-third of the vehicles produced by the Chrysler Corporation in 1995. If Congress were to replace the current federal income tax with any one of the three predominant alternatives currently being discussed - the Flat Tax sponsored by Rep. Armey (R-Texas) and Sen. Shelby (R-Ala.), the USA Tax System sponsored in 1995 by Senators Domenici (R-N.M.) and Nunn (D-Ga.), or the National Retail Sales Tax Act recently presented by Reps. Schaefer (R-Colo.) and Tauzin (R-La.) - it could dramatically reduce America's tax-related burden without necessarily sacrificing a dime of federal tax revenue. The Tax Foundation has estimated how much each plan could reduce the current system's $157 billion tax surcharge, assuming a reasonable transition period had ensued. The Armey-Shelby Flat Tax could reduce the surcharge by 94 percent to $9.4 billion. The USA Tax System could reduce the surcharge by 77 percent to $36 billion. The Schaefer-Tauzin sales tax could reduce the surcharge by about 95 percent to $8.2, but the entire burden of this sum would fall on retail and service businesses. However, as currently written, the Schaefer-Tauzin plan would compensate businesses for about one-half of this cost. These estimates are based on pure versions of the alternative tax systems. It is reasonable to assume that the effect of molding any of the alternative plans into a functioning tax code could increase the complexity, and therefore their associated compliance costs. Fundamental Sources of Tax Complexity The cost of complying with a tax system is directly related to the complexity of the system. In terms of complexity, it is fair to say that an income tax - the core of the U.S. _j 113F I

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