Tax spending doesn’t equal military spending
Cruz’s claim proves to be squishy at both ends of spending totals.
A reader questioned U.S. Sen. Ted Cruz’s comparison of military spending to how much it costs Americans to get their taxes done.
During a discussion with wine industry representatives at Becker Vineyards, Cruz said: “Every year, we spend roughly $500 billion on tax compliance. That is roughly the budget of our entire military, entirely wasted on tax compliance. I agree with you we should move to a simple flat tax where everyone can fill out their taxes on a post- card and that we should shut down the IRS.”
Both figures, we found, need explaining.
Per military spending, Cruz campaign spokesman Rick Tyler said that the senator drew on a chart posted by The Washington Post in 2012 indicating that, adjusted for inflation, defense spending has exceeded $500 billion a year since 2007 or so.
The Post relied on the
Washington-based Center for Strategic and Budgetary Assessments, where analyst Todd Harrison told us the military’s 2014 base budget, meaning the cost of maintaining a standing military in peacetime, totaled $496 billion.
So far, so good — except, Harrison advised, that figure did not reflect all military spending. Generally, he said, the base budget “does not include the cost of using the military to fight a conflict, nor does it include legacy costs, such as unfunded pensions and veterans benefits, or military activities conducted outside of (the Department of Defense) such as the maintenance and upgrade of nuclear weapons.
“All of those things are extra,” he said. If you count those other expenses, Harrison said, the U.S. spent $866 bil- lion on the military in 2014.
Next, we turned to what it costs Americans to fulfill federal tax requirements.
To get our arms around “compliance costs,” we reached out to certified public accountant Connie Weaver, a Texas A&M University professor who guided us to June 2011 testimony on compliance costs by tax expert Michael Brostek of the investigative arm of Congress, the Government Accountability Office.
Broadly, Brostek said that complying with Internal Revenue Service regulations “costs taxpayers time and money,” at least $107 billion in 2005, the GAO estimated, with other studies estimating costs 1.5 times as large.
Beyond compliance costs, Brostek noted even larger estimated “economic efficiency costs, which are reductions in economic well-being caused by changes in behavior due to taxes.”
We noticed that the FactChecker at The Washington Post awarded two Pinocchios to a similar claim by House Speaker John Boehner — that it cost Americans $500 billion a year to comply with federal tax demands. Cost estimates varied, the Post wrote, with the “safest bet” at the time being $163 billion, as estimated by the IRS’s Taxpayer Advocate Service, entrusted with helping taxpayers resolve problems and recommending changes.
Adjusting for inflation, that cost would have been nearly $172 billion a year around the time Cruz spoke in 2014.
Tyler told us Cruz got his tax compliance costs from an April 2011 analysis by supply-side economist Arthur B. Laffer and others indicating $431.1 billion in combined annual costs incurred by taxpayers to pay federal taxes and a May 2013 study by researchers at the Mercatus Center at George Mason University stating that the annu- al “hidden costs” of U.S. tax compliance ranged from $215 billion to $987 billion.
The Laffer-led study said researchers created a “comprehensive estimate of the total administrative costs, time costs, and direct tax compliance costs created by the complex U.S. federal income tax code.” The $431.1 billion in estimated annual spending, the report said, reflects money spent “to comply with and administer the U.S. income tax system.”
In 2011, the Post’s FactChecker called the Laffer study “dubious,” noting it took a figure from the IRS’s Tax Advocate — that individuals and businesses spent 6.1 billion hours complying with tax filing requirements — and got to its cost estimate by multiplying “it against an absurd hourly income of $68.42 on the theory that the wealthy pay most of the income taxes.”
The Mercatus Center’s study similarly noted the high wage costs applied in the Laffer study, stating that in the study, the “average income used to monetize taxpayers’ time is significantly greater than the average income used in other estimates.”
For its part, the center suggested a range of hidden costs connected to paying taxes, including “time and money spent submitting tax forms, foregone economic growth, lobbying expenditures, and gaps in revenue collection,” though the authors said they couldn’t pin down a figure for lobbying by interests trying to reduce taxes paid.
As far as compliance costs, what Cruz singled out, the center study estimated $67 billion to $378 billion a year in accounting costs associated with filing taxes, a range based on IRS information suggesting 60 percent of individual taxpayers and 71 percent of unincorporated business taxpayers pay someone to prepare their taxes, with 32 percent of individual taxpay-
ers relying on software.
Our ruling
Cruz said: “Every year, we spend roughly $500 billion on tax compliance. That is roughly the budget of our entire military, entirely wasted on tax compliance.”
This claim proved squishy at both ends. It looks as if, depending on how you value time, you can get to almost any total for what it costs Americans to prepare and file tax returns. However, most estimates run short of Cruz’s figure. Meantime, military spending exceeded $800 billion when he spoke, though the senator’s spokesman indicated he meant to not count spending on conflicts abroad and other items not in the military’s nearly $500 billion base budget.
We rate the statement False.