Filing Your Taxes Is an Expensive Time Sink. That’s Not an Accident
theatlantic.com
theatlantic.com
>> Instruct the IRS to implement a system whereby any American can opt into a program to have their taxes filed automatically.
>> Instruct the IRS to coordinate with the Treasury to prepare a report on federal spending, and send each taxpayer a rundown of the actual amount of their taxes that went to each major spending area (e.g., domestic programs, foreign aid, military, etc).
>> Increase the budget of the IRS by 50% to $16.2 billion and modernize it with the latest technology. Money spent on the IRS will almost certainly pay for itself many times over via better tax compliance and less wasted time of citizens. Running the country like a business means both taking care of constituents and collecting revenue as seamlessly and efficiently as possible.
I can already automatically import most forms from banks/financials/payroll companies into TurboTax. Why not skip the middle man?
I spend £0 and about 60 seconds on my taxes every year. It's all arranged automatically between my employer and the tax authority. I just get a letter in the post every year telling me the calculation that I check is sane. My tax payments are deducted by my employer from my monthly pay.
Lots of people do, it gets lots of talk every few years, and nothing happens because the people that don't want it to happen do so a lot more intensely than the people that do want it to happen want it (because the former literally have major businesses that depend on it not happening.)
Yes, "Tax Reform" get's thrown about, but no one ever seems to elaborate. I don't recall too many candidates debating "automating" income taxes.
The Tax Prep lobby. The middle man gets to collect a nice rent from you for being the middle man and they don't want that to end.
https://www.propublica.org/article/how-the-maker-of-turbotax...
The actual calculation of the amount due from the taxable income uses a lookup, which is equivalent difficulty under any scheme other than a flat capitation, where the table reduces to a single value, and even the GOP hasn't proposed a capitation.
Getting from a collection of other information to the final taxable income is most of the complexity, as are things like credits that apply after the initial application of the rate. But there is nothing inherent about the flat vs. progressive rate distinction which drives practical calculation complexity, they are just orthogonal concerns where the popular one (simplification of calculation) is used as a tool to sell the one that is less compelling to the broad public on its own.
Not to mention that the only reason a lookup is being used is to reduce opportunity for error in hand-calculating one's tax obligation. And it's also another big reason the current tax system doesn't fit on a post card: A pretty big chunk of the instruction booklet is those tax tables.
The basic logic is that if filing taxes is too easy, people will not have a good grasp on how much the government is asking of them and will accept tax rates that would irritate them in a system with more direct participation. (On the flip side, this seems to assume that the taxes are being used to create a good enough quality of life that people are generally satisfied and not poor, so if that's happening, it might actually be a more realistic perspective than if people focused on the tax rate more.)
This basic idea seem patently ridiculous to me.
I've more-or-less made a career of doing math and managing complicated procedures, yet still, I find the current tax prep process to be such a mind-numbing grind that, by the time we get to the point where I've calculated how much tax I actually owe, I've long since quit caring to calculate what percentage of my income that is. By that point, the only number I care to see is how much I owe or will be refunded, so that I can just be done with the whole mess.
It's hard to imagine that someone who's got a more typical level of comfort with math is going to be any more prepared to do that one extra calculation.
If the GOP really wanted me to be aware of how much tax I'm paying, they'd reduce the whole process to a simple report they send me, with everything already calculated, that has "your calculated income tax in dollars" and "your calculated income tax as a % of net income" listed in big bold print at the very top.
It seems much more parsimonious to me to suppose that the logic is, "If we make income tax a hateful process, people will come to hate income tax."
(Which, incidentally, is a line of reasoning that would play very well to the position of those who want to get rid of progressive taxation. Most other forms of tax we have in the USA are either flat or regressive.)
H&R Block, Intuit, etc... made huge bank off of killing the state e-file system. There is zero chance they're going to let the feds implement something similar without an enormous fight.
I think this is outstanding. I'd love to know how my tax dollars are spent, and I think once people see this they can begin to push for meaningful reforms that they feel spends they money more effectively.
The part that I found most surprising is that in the US there is basically no way for an individual to read the law and follow it. The law is way too complex and murky. As a contrast to that, in most countries that adopted German law principles, it is perfectly normal for a person to go read the law if in doubt.
I've spent at least $2000 this year to figure out how to make this work—and I'm going to spend more to actually fill and send the forms off. . .
The additional requirements of the recent tax legislation which make it effectively impossible to own a foreign corporation (as an American living in said foreign country) and retain earnings according to the corporation's "home" country's tax laws is even more ridiculous. The IRS demands 10-20% by fiat disregarding all international tax law.
As a Canada-U.S. dual citizen I used to find it very difficult to file both, but I think it's just a knowledge gap.
The IRS has obligations to you which you'd be laughed out of the room for attempting to exercise with the CRA, so there are positives, even if the tax codes and anti-money-laundering procedures are somewhat onerous.
Americans are (in my opinion, excessively) concerned about money laundering and "dark money", so the result is that money is accounted for when Americans control it abroad. The procedures stem from that desire to account for holdings and transactions of Americans abroad: reporting any transactions with other U.S. persons abroad, reporting bank accounts which exceeded 10,000 USD at a credible exchange rate (the IRS posts their own) for the time during which it exceeded 10,000 USD, etc.
Evevn here in this thread, you see people concerned that somebody who gets rich in Canada, using Canadian infrastructure and capital, may not be paying "their fair share" of U.S. taxes, which is pretty ridiculous if you imagine the injustice of double taxation that entails. I might make enough money one of these coming years that I have no prudent choice except to become resident in the U.S. to avoid these tax peculiarities.
Our nation was founded largely by lawyers.
The first time I filed, I had not updated my W4 soon enough after moving and owed NYC like $4k in taxes which came up around 18 months after I filed. The following year the software I was using said I owed around $10k in taxes, which I was pretty sure was wrong, so I went to an accountant and they did it for me and said I owed nothing. Even after all that, there is no way to know who is right until 3 years from now (IRS theoretically doesn't look back more than 3 years for individual returns).
Bonus: An option to indicate where ~5% of your taxes goes to.
2. We also have a website for that (though it's probably just a glorified multiplication and graph) [2]
[0] https://www.impots.gouv.fr/portail/particulier
[1] it looks like https://www3.impots.gouv.fr/simulateur/calcul_impot/2019/sim...
If I moved abroad, I'd be worried some things like that get missed for whatever reason ;)
The thing is that if you are a British resident who only works one job and doesn't receive money from any other source, then such person would literally never have to think about their tax return - it will be done fully automatically without any input from them whatsoever.
tl;dr: All the infrastructure is in place and everybody loves the idea (Literally 99% approval in the test-run of 80,000 taxpayers); but Intuit (Makers of the TurboTax software, who get rich thanks to people's confusion and frustration), spent $28 million lobbying against it.
I actually thought about civil disobedience on this - just staple the state copy of the W2 there and let them deal with it. Maybe next year...
https://www.npr.org/sections/money/2017/03/22/521132960/epis...
The fix is to address the root cause--reducing excessive lobbying that seems to control the government and implementing a direct democracy that puts the government better under the people's control (it's time to replace the electoral college).
There are massive bureaucratic institutions and processes that need to be changed, huge IT systems to be created and maintained (doesn't the IRS use magnetic tape??) and laws to be adjusted.
Making complex things simple is one of the hardest jobs out there.
"1. That's how it's done in France AFAICT. In April/May we get the pre-filled form on our tax site [0,1] and make sure it's ok, then tick a box.
2. We also have a website for that (though it's probably just a glorified multiplication and graph) [2]
[0] https://www.impots.gouv.fr/portail/particulier
[1] it looks like https://www3.impots.gouv.fr/simulateur/calcul_impot/2019/sim....
The employer will file salary taxes, the bank will file taxes on interests.
At the end of the year they send summaries and that can be it.
As soon as you have income from other sources (i.e. self-employed work etc.), want to deduce more than 1000€ etc. you have to get into the paperwork and then it can become quite complex if you want to really take all benefits in.
The US side of things has been... not the same experience.
If you ever want to meet up and compare notes as a US expat in CH, let me know! Email in profile.
That seems like an uncharitable characterization of a group that has argued for a simpler tax code with generally fewer loop holes (as opposed to an elaborate tax code that no one can understand, with a pre-filled form that in theory one could double check but in practice few would check).
"uncharitable characterization of a group that has argued for a simpler tax code with generally fewer loop holes"
Fewer loopholes for middle and lower class folks? Yes. Repealing the estate tax is very literally a new loophole that allows the rich to keep more money while closing that pesky mortgage interest deduction for the middle class. Taxes are just a way of redistributing money. Calling a party pro-tax because theyre moving the burden from one group to another is...interesting.
Can that possibly be true, if wealth distribution is unequal?
A pre-filled form will help every single one them to save money.
And you can still have your pre-filled form verify by an accountant or H&R Block. No one is stopping you from that.
You should listen to the latest Planet Money Podcast - Tax hero. Republican don't support this because having complicated form will make people oppose taxes in general. That is the republican motto.
Through the Free File Alliance, TurboTax and other such software is free for anyone making less than 66k.
Maybe this problem could be solved with education? I know there are also issues where people in poverty don’t file and then miss out on $1000s they might have gotten from the government via EITC.
We own a house, two high-tech incomes, and loads of 1099Bs to deal with. IOW, I can't imagine the tax situation of your employees is any more complicated than mine. In previous years, I could whip it out on a Saturday morning. This year, it was an hour of importing forms electronically, if that (umm, thanks, higher standard deduction?).
I'm not trying to take away from your point, I'm still chafed each year that I have to give money to TaxAct (at least they don't lobby for complicated taxes, AFAICT). But taxes aren't that complicated for simple situations. Maybe have an hour brownbag or something on "here's how to enter the control # off a W2 and import it. Import from Fidelity. Sorted."?
There's a lot of domain-specific knowledge that goes into filing your taxes, and it's easy to be afraid that you're gonna mess it up and be on the hook for thousands of dollars.
I'm not advocating for a purely consumption based tax system but, if we were to have one, it seems to me that a small amount of ingenuity in the design of the tax scheme could mitigate that problem almost entirely.
Although, when you say "a crushing burden on those people who could least withstand it" are you assuming I am suggesting a flat sales tax?
It is possible to have a federal sales tax that has categories, with different percentage scales. So maybe a bag of rice has 0%, pork fried rice from the local Chinese food place has a %5 sales tax, and Lobster risotto from a fancy restaurant has a %50 sales tax.
All I am suggesting is the burden of filing taxes should be pushed to businesses who already have to deal with accountants and lawyers and whatnot.
Note: I'm not recommending you move to those countries. the US is one of the few places that you still owe taxes too, even if you move out of the US!
The scenario they paint with chasing down form after form simply does not happen for most people. For most people it's one page.
But the idea that your taxes can be pre-computed by the IRS is fantasy beyond that, unless the tax code is significantly changed.
Sure they know your W2 income and some other standard stuff. How do they know your self-employment or business income? How much you gave to charity? How do they know what unreimbursed expenses you had? How do they know how many kids you have? How do they know your marital status?
I guess most of that could be addressed by just eliminating all deductions and allowances but even at that there are a lot of things they simply cannot possibly know until you, the taxpayer, tell them.
If you have a simple one-off event (like a capital gain when selling something) then you can just write a plain ordinary letter telling them about it and they will sort out the tax bill for you.
Even for the self employed it’s generally a pretty simple process of filling in your income and expenses and then everything else is calculated for you.
If it's 1099 income, they know it for the reason that the 1099 gets filed with the IRS, as well as a copy going to you.
> How do they know how many kids you have?
That doesn't change very often, and there is interaction with the federal government which easily could be, if it isn't already, shared with IRS for the most common reason for changes in the positive direction.
> How do they know your marital status?
Again, that doesn't change frequently, so mostly they have a good basis for it by assuming whatever it was he previous year.(For this and the preceding, and a lot of similar status issues, it would be easy enough to move the data collection to a pre-filed form—for regular workers you could collect it, or changes to it, as part of the W-4—instead of the equivalent of the current retrospective tax return, expanding the accuracy of precomputed taxes and reducing the need for supplemental retrospective filing.
But, yeah, you'll probably always need an option for at least supplemental filing for information that differs from information the IRS has from other sources or is outside of it.
1099s have the wrong cost basis information for ESPP and vested RSU shares, so the IRS does not know what the correct tax is when those are involved.
Personally I wouldn't gain that much from simply a pre-filled return (I'd keep B and D and chuck the rest) but many would.
If I were a strategist in charge in making taxes hurt, I would try to help people understand how much bigger their paychecks could be. Please read this comment as politically neutral.
...you can elect to not take those taxes out, and instead via your bank or employer have that percentage of your check put into a savings account of some sort. Then you can let that money sit and accrue interest (and laugh at the small return), or use it to invest (which has a greater risk, because if you invest wrong, now you've lost that money and you still need to pay it back at the end of the tax year).
If this sounds interesting to you, then (unless you already have the experience) I would look into some form of small time investing, or other financial instruments for wealth accumulation from which you can still withdraw an amount at the time you need to pay your taxes.
Assuming you can find something with a decent return over a year's period. Which is probably the most difficult part of it all.
The best strategy for withholding that conforms to the law is to use the IRS online withholding calculator to set your exemptions and aim for a payment/refund of around $0
It’s also part of why price tags in the US almost never include sales tax.
> "Netherlands, the procedure is simple ... Dutch citizens can file their taxes in minutes ... in Sweden, 72 percent of taxpayers say filing taxes is easy"
I enjoy what I receive from paying my taxes. Please make it easier.
Is it? With SimpleTax [0] and Auto-fill [1][2], tax filing for an average person (with a bunch of T4s and T5s, some RRSP contribution, etc.) shouldn't take more than 30 minutes. That's how much I have spent on preparing my taxes every year since Auto-fill was introduced, even though I had to input T2202As by hand.
[1] https://www.canada.ca/en/revenue-agency/services/e-services/...
Where I live, most people approve a pre-filled statement. This boosts tax revenue, because people don't think twice about deductions that are not pre-filled.
It's more convenient not to do your own math, if you trust the actor who does the math for you.
edit: 'tax', I am not being literal
In our society, life gets easier as you move up. Beyond a certain threshold, you can set up a self-maintaining rent seeking empire and stop working entirely, while your wealth accumulation continues to accelerate.
But tweaking the income tax does nothing for the other payroll extractions. Or the gasoline excise tax. Or the sales tax. Or property tax (paid through rent). Or tariffs.
Or the hidden tax on the everyone: inflation. That paycheck doesn't go quite as far each year, does it?
Beyond that, you've got land-use controls and building restrictions that artificially drive up the cost of housing close to job centers. Then school zones create more barriers. You'll spend more time commuting, which means the rest of your life is more difficult. And buying a car is more expensive as the regulatory burden on auto-makers increases year after year.
Unfortunately, this is where many say, "Well the government just needs to help those in need." So taxes go up. Rent control is added. Rinse & repeat.
By the time you account for income tax, FICA tax, state tax and health insurance you can say good bye to about 40-45% of your income at an average software developer wage who happens to be self employed. That's effective rates too.
The argument they try to make is that the government could take advantage of its citizens. As in, it wouldn't be in their interest to reduce our taxes as much as possible.
The thing is,that's the exact reason most private tax preparers say not to us H&R block. They only take the most conservative deductions, etc.
Most people who have a single regular income will find that their employer has paid the exact correct amount of PAYE on their behalf, people who have multiple employers may receive a tax refund, they can file for it by filling out a 2 page online return (I think this year the IRD will start doing this for you, you'll just get a cheque in the mail)
As an employer filing monthly PAYE is equally trivial, it can be done with 1 line in a spreadsheet - I spend 30 minutes a month paying bills/taxes/etc for my company
People don’t revolt about taxation because they never see the money. If people had to pay the bill themselves every month there would be riots in every city within a year or less.
https://www.vox.com/future-perfect/2019/4/3/18292741/irs-tax...
I really wish, as a country, we could stop beating up on the poor.
> The sociologist Kieran Healy has joked that most data visualization maps of the US show one of two things: population density or the percentage of the population that’s black. This is decidedly one of the latter maps, with the notable additions of heavily Latino counties in southern Texas and Indian reservations in South Dakota and Montana.
However...statistics are pernicious. This is an extraordinary accusation, and before I accept it as true I'd like to see more due diligence to ensure there isn't (for example) a stray, superfluous correlation between population density and Hispanic/Black demographics at play here.
With that aside, this looks like something that should definitely be investigated more thoroughly. Even if this is ultimately a side effect of minority groups being correlated with greater population density (and I don't know if that's true, to be clear), the ultimate consequence looks pretty negative.
I am deeply disappointed in the gratuitous attack on Republicans at the bottom of the article. Low for even the Atlantic, it shows this is not an unbiased source but rather a politically biased one.
I’m happy with the local “IRS” using the newest technology to save me time and the country money.
[1] https://www.propublica.org/article/filing-taxes-could-be-fre...
Probably more complicated than that and corporations would respond in kind. But it does seem like giving citizens the ability to compete in the lobbying space only makes sense.