Evening star., 1935-12-15
The Cost of
Paying Taxes
By Frederic J. HaslkiH.

The amount of tax which any Citi-
zen or corporation must pay is the big
item OF the transaction, but there is also
What might be called shadow tax, the
revenue from which does not inufe to
the Government, but which, neverthe-
less, constitutes a definite charge upon
the taxpayer. It is the cost involved in
making returns and diScharging the
obligation to the taxing authority.
The average individual, paying a Fed
eral or State income tax on a simple
salary or the clear profits of a small
business does not have a very greo1
cost. For many people the cost cons:lss
so far as cash outlay is concerned, of the
small fee of a notary public who takes
the acknowledgment that this is, in fact,
the taxpayers worn account and the
price Of postage stamp. Some persons,
with complicated personal incomes or
persons unSure of their way through the
mazes of blank, pay fee to an expert
to help in making the return, but such
persons are in the minority.
In the business world it is a different
matter. The privilege of turning over to
the Federal Government a substantial
sum of money may prove in itself to be
quite an expense. The larger corpora
tions maintain entire staffs of experts,
including accountants and tax lawyers,
while medium-sized companies find it
necessary to call in a specialist and
often pay him a substantial fee.
The importance of this shadow tax
only recently has been made the subject
Of study. The taxing authorities them
selves have paid some attention to the
cost OF collecting taXeS-a cost which is
paid for out Of the taxes collected-but
little attention has been given the broad
subject Of the additional financial weight
imposed on the taxpayers by the process
of making payment.
Prof Robert Murray Haig of Colum-
bia University has recently made a study
OF the shadow tax which has brought
considerable enlightenment to those who
have had the benefit of studying the fnd-
ings. Prof. Haig is described as a pioneer
in the field. So far, he has studied but
single year, 1884, and has found so
many variations in the cost of paying
taxes that it is almost impossible even
to estimate a total cost to corporations
alone, to sly nothing of individuals. That
the cost of compliance with income tax
laws is in the neighborhood of $780,
100000 a year seems conservative in view
of the findings of the professor.
X x
The study was made by sending queS-
tionnaires to various groups of corpora
tions, and the widest differences were
found to exist among them. In one
group of 95 corporations, it was found
that the cost Of compliance averaged AZ
per cent Of the tax but that, in some of
the instances, it ran as high as 25 per
cent. This would mean that if the tax
owed by one of these high-cost corpora
tionS was 100000, it cost that corpora
ton $4,000 in addition merely for the
privilege of making payment. In sharp
contrast to this. the cost to the Federal
Government of collecting is only about
per cent.
The Governments cost is made up Of
salaries of collectors of internal revenue
and the members of their staffs. the
salaries of the income tax unit at WASH
ington, the cost of printing the many
different kinds of blanks required, mail
handling, filing and the h rltiplicity of
detail which is inherent in be admin
iStration of so involved business.
1t will be noted that this cost has
W uO O444g WiJ44 L44C PdyA4ACAlb VI btAC III
come tax. Some of the other Federal
taxes are equally difficult if not more
difficult to return. The sales taxes and
excise taxes and especially the liquor
taxes require more bookkeeping on the
part of the taxpayers than on the part
of the Treasury. And it must be remem-
bered that if the taxpayer does not
comply to the full with the requirements,
no matter how costly he will incur a
heavy fine and may even be deprived
of the privilege of doing business and
being a taxpayer at all.
Then, too, it must be borne in mind
that taxpayers must make returns
whether they have earned enough money
to pay an income tax or not. No in
come tax is applicable where no net
income has been earned. The statistics
reveal that thousands of corporations,
especially in poor business years, report
no net income. Yet returns must be
made and il costs just as much even
though no profit has been earned and
no tax is due.
The year 1881 was in many ways
comparable to the current year and so
may be taken as an example. In that
year 237 1893 corporation returns were
made showing no net income. A smaller
number, 143195, made returns showing
net income on which tax was due. 1t
cost those paying no tax just as much
to send in their returns as those who
were liable for taxes, save that another
item might be added to the invisible
or shadow tax of those from whom tax
was due. A great many had TO borrow
money with which to meet their taxes
and the interest on this was, of course,
an additional cost of complying with the
law. In the same year there were $4,000
individuals who made returns showing
no net income and therefore no tax
payable.
Federal taxes are but part of the
story, and not very large part where
some individuals and especially cor
porationS are concerned. The State
county and municipal impoStS require
a tremendous amount Of paper work.
more for some taxes, than the Federal.
1t costs enough to pay the taxes TO one
State. For example, the inquiry re-
vealed that it cost large group of New
York corporations 225 per cent Of the
amount of their tax to perform the
necessary requirements in paying. An
other group, it was found, which did
business in several States and had to go
through the performance repeatedly, paid
40 per cent of the total amount of taxes
in costs of making payment.
It was suggested that $100, ,000, 900 a
wear was the amount it cost to go through