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Comment by Calloggs | Hacker News Reader

Planet Money covered tax filing a few years ago and visited it again recently: https://www.npr.org/templates/transcript/transcript.php?stor...

My understanding is that the main opposition appears to be (1) the tax preparation lobby to protect their business interests and (2) anti-tax activists that believe that making people calculate their own taxes will make them more aware of how much they are paying in taxes.

The second argument blows my mind because I can't imagine that the set of people who would just pay the IRS without double checking their math are reviewing the tax filings from the third party they use right now. In other words, I would really like to see a survey of how people currently file their taxes in comparison to how they think they would if there was an IRS free filing for everyone or something like the ReadyReturn mentioned in the NPR story.

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It’s not really about making people more or less aware of what they are paying.

The point is to make filing taxes as time consuming and obnoxious (and therefore emotionally painful) as possible, ideally without the public connecting the dots and getting outraged.

The point is to enrich Intuit and other tax preparers that lobbied for this.

That's for point 1. Point 2 is a completely different camp.

Point 2 is after-the-fact rationalization so they don't have to admit point 1 in public.

These anti-tax activists seem to be playing the role of Useful Idiots for the much more substantial reason 1, bearing in mind that the very existence of such companies making tax filing easier does indeed destroy point 2 entirely (in addition to the what OP pointed out which also takes away any credit this idea might have had).

From a european perspective, having tax returns that are not pre-filled, and having a tax administration that doesn't strive to make payment as easy and quick as possible is nonsensical. Why would the state not want its services to replenish its coffers in the fastest most efficient way possible?

For most people the state gets paid every payday from automatic employer withholdings. If your withholdings are much lower than the obligation then you may pay interest penalties. So it’s not really necessary from a cash flow perspective but still would be much more efficient.

As a former US student, and paying my student loans.. I also cannot easily _pay_ them while living abroad. It requires I pay fees to transfer money to a bank account, and pay directly from this account. I cannot use an overseas account nor a credit card or paypal etc. So on top of the ridiculous amount they want, I have to pay money to even pay money.

The thing is that the form 1040 is laugably straigbtforwards to fill out. If intuit has had any success, its in convincing people that filing their own tax returns is more complicated than it is

This is only true if you don't own anything, never make any contributions, don't have any investment accounts, and don't have any self-employment income. Otherwise the 1040 is a huge pain in the ass requiring forms within forms and raising tons and tons of nebulous questions about your exact status within the legal definitions.

I wouldn't assume that the people who pay for tax preparation every year are idiots.

I make 401(k) and IRA contributions, have been self-employed (and yes, had to file quarterly returns), have several investment accounts. It's still straightforwards. You don't have to be a rocket scientist to fill out these forms. The IRS provides copious documentation and even has a phone line...

Please stop assuming the guy you're talking to on Hacker news is a simpleton.

> Why would the state not want its services to replenish its coffers in the fastest most efficient way possible?

The humans who make up the state are more keen to replenish their own personal coffers in the fastest, most efficient way possible -- good old fashioned graft. No one with significant power personally benefits from an efficient IRS with a pleasant user experience.

I think it’s actualy both

The US has the most idiotic tax system. Your employer, your mutual funds, your 401k, your bank -- everyone reports what you make to the government. The government already knows what you owe (excluding those that itemize). They should just print out a summary and hand over a bill / refund.

Recently I was filing my taxes in Chile for the first time and it took about 10 minutes because the tax service already knows most of my activities, including stock purchases via a local broker and dividends from them. I only needed to review the form for correctness and press "send".

This is not done because the IRS doesn't have the power to enforce its tax system, and if it reported the information it had to the people, the people could know they can slip away with not paying anything that wasnt properly reported.

First, a transparent system of the IRS would lower revenue. Second, the deductibles system is very complex for the IRS to pre-calculate it, so they are unable to do it.

Especially with the tax reform, most folks will be taking the standard deduction. Making the common case easy is still worth pursuing, even if some people will still itemize.

You didn't cover the most important—and political—reason: it would delay refunds.

2019 deadlines for 1099-INT/DIV (i.e., the forms you get from your bank or brokerage) are April 1st. The IRS filing window opened January 29, with 90% of tax returns processed within 21 days. Since the IRS can't reliably pre-populate a tax return without all the required information, it would delay filing (and refunds) by 8 weeks.

As the tax refund check is the largest check many Americans receive every year, delaying that payout gets taxpayer advocacy groups up in arms and is tantamount to political suicide.

Incidentally, this same gap is where a bulk of tax return fraud happens—equalling billions of dollars. In short, if you file return before the IRS has all the information to validate that return is indeed correct, they'll usually shrug and accept it. By the time they get all the information they need, you've cashed out your refund debit card and are long gone.

I haven't seen any analysis that such a system would lower revenues (indeed, it would stop billions of dollars of fraud and tax evasion), or that the deductible system is too complex.

> In short, if you file return before the IRS has all the information to validate that return is indeed correct, they'll usually shrug and accept it. By the time they get all the information they need, you've cashed out your refund debit card and are long gone.

This doesn't really pass the smell test for me. The IRS has, what, 7 years(?) to audit your tax return. They can and will do so, and will send you a bill, with penalties and interest included. (Source: this has happened to me, around a mistake I made with self-employment tax the first year I had non-W2 income.)

Not sure how you'd be "long gone", either, unless you're not a US citizen and have since moved out of the US.

That's correct, albeit more nuanced than I was getting.

My point is that they'll "shrug", accept your return, and issue you a refund. Yes, they may come back later and say, "Actually..."

When I say, "you're long gone", I'm referring specifically to taxpayer identification fraud, where you'd file a (fraudulent) return on behalf of someone else (often a dead person or someone from Puerto Rico[1]), receive their refund in the form of a debit card, and "disappear".

In any case, it's way easier to avoid paying someone in the first place than try and claw it back later.

[1] https://www.irs.gov/taxtopics/tc901

Other note that I like to make just because it's interesting: actual audits by the IRS are very rare. They send a good number of collection letter every year, and the collection rate on those letter is very, very good. But those collection letters are categorically not audits, and more "friendly reminders". (Such that any letter on IRS letterhead could be considered friendly!)

>The IRS can't reliably pre-populate a tax return without all the required information

Neither can I.

The difference is that you know whether you have all your required information. The IRS doesn’t know until it has everything.

Example: your only bank sends your 1099-DIV on February 15, so you file your return. You know that no other bank is going to send you a 1099-DIV because you don’t have any other bank accounts.

The IRS doesn’t know this. The IRS only knows that you didn’t get any other 1099-DIVs after they’ve received all 1099-DIVs and no more are yours.

The IRS could develop a system where they list what information they've received already, and you can then validate that this represents the complete set of expected information and request that they go ahead and process taxes now without waiting.

If they then receive more information later that would affect your taxes, they can bill you, or otherwise just go through the same process they would if you filed your taxes incorrectly under the current system.

Ideally, you'd want the IRS to be able to reliably populate a tax return, where all you do it sign it (or make corrections). A world where the IRS is pre-populating a return that may not be correct starts getting tough, even with such a taxpayer-warrant system.

Ideally, yes. If you need to preserve the ability to get refunds earlier than April 15 then one of two things needs to happen:

1. Move up the deadline for companies to submit tax information to the IRS, or

2. Allow taxpayers to declare that the IRS will not receive any more tax information than what they already have, with penalties for lying (presumably, the same penalties as what happens today if you submit your taxes early and you yourself haven't received all the relevant information yet).

Or we could just pay the one-time hit of "you can't get your refund early" and have the IRS process taxes once the existing deadline has passed for companies submitting tax information to the IRS. I say one-time hit because after the first time, any refunds for following years would occur 1 year after the previous year's refund, just like it does today, it would just be at a different point in the year (assuming you even submitted taxes early to begin with; if you didn't, then no change).

#1 - You’d have the entire corporate world up in arms every year.

#2 - Probably the best solution, though kind of waters down the revolution.

#3 - Probably what SHOULD happen, but again, political suicide.

"The difference is that you know whether you have all your required information."

I don't.

Then this won't affect you, as you'll have to wait until April 2nd just like the IRS.

Which many countries do already.

In France, before this year, if you were an employee, you rarely filled a tax form, you just validated a prefilled one, usually with one click on the internet.

Now it's just taken every month from your salary, and you get a chance to correct it once a year.

Many countries do this, because in those countries, the government actually represents the interests of people. If there was ever a clear case of the US government putting the needs of businesses before the needs of the people, it's this: keep taxes as complex as possible in order to create business opportunities to sell products to make it easier again. It's a complete bullshit business that shouldn't be necessary at all. It exists only by the grace of an incomprehensible tax code.

Wouldn't generalise that much in saying my government (UK) is truly representative more than the US, but in the US in general, it seems that whatever business exists there has to be something for the middleman.

Also whatever government function exists must be open to a middleman to take their profit out of it. The US is optimizing for businesses and investors, not citizens.

I wouldn't call the french tax system simple or made to be easily understood. Here is the code for income taxes : https://github.com/GouvernementFR/calculette-impots-m-source...

But I agree the french gov is less into business.

No they don't. There's a gazillion things you could do or claim to lower your tax bill.

Moreover, if you set up all yoyr withholdings correctly then you do not need to file anything. You only need to file if you owe (ie you set up withholding wrong) or want yoyr money back (ie your withholding was wrong)

That's the problem. There shouldn't be a gazillion things, and the fact that there are is a major reason why rich, savvy, and unscrupulous people are able to game the system while average people pay full freight.

TFW you learn it's unscrupulous to read the tax code

The three adjectives I mentioned are all independent variables that each afford more tax advantage.

That is not true. You're generally required to file a tax return if your income is over 12K, depending on your filing status and various other rules, regardless of if you owe money or are owed a refund.

https://www.forbes.com/sites/kellyphillipserb/2019/01/30/do-...

The second argument is about raising all relevant barriers to submitting your tax return. If I were in this camp I’d be pushing for everyone to have zero withholding and carry cash to a tax filing center. Ideally, there would be very few tax filing centers so you would need to travel far and wait in line. My bet is that within the first year of this taxes would be massively reduced. Also, very few people would actually be able to pay the government.

Again, this is just for the sake of argument.

I don't understand what anyone would gain from this. Citizens would be more cash-rich throughout the year, then cash-poor when tax time came. Over the years, people would learn to squirrel away similar amounts to what they're withholding now. Withholdings exist now as a forced savings plan for the poor and a free loan system for the .gov for the upper class.

> My bet is that within the first year of this taxes would be massively reduced.

Making the filing and paying of taxes difficult and painful won't change a person's tax liability, it'll just irritate every citizen until we collectively demand an easier process. If you can't pay, you get penalties and a payment plan. Don't forget that the IRS is a government entity capable of legally charging, suing, etc. with the force of law. Why would having to travel to a payment center reduce someone's tax liability?

I guess I want to know more of the argument, for the sake of argument, because the argument doesn't make sense to me as presented.

The easier and more "automatic" any tax is, the easier it is to hide, and the less people understand that they're paying it. And as they become less aware of what they're paying, it becomes easier to take more.

OP is acknowledging the inverse is also true, and that if "automatic" aspects of the system were removed, people would become much more aware of what taxes they are paying, which would lead to public support for reducing the amount.

The anti-tax group wants to make paying taxes as painful and inconvenient as possible based on the assumption that if taxes suck, more people will be more actively in favor of reducing taxes (as opposed to, you know, making the process not suck).

It's not about reducing liability at all right now, it's about making more people anti-tax.

Whether I'm going through the terrible process to pay $20 vs $20,000 doesn't make a difference. How would a lower tax rate improve anything in this scenario?

You're more likely to pay attention and double check some maths when writing out a $20,000 check as opposed to a $20 check.

I haven't heard an anti-tax argument in this topic, but this is a main argument between economists and statists.

Economists will always say that the tax should be explicit, and it should be placed for the people that ultimately pay for it. But pro-taxes people, mainly the government, want higher revenues first, which means putting a tax wherever you can, and that is about what is politically feasible, not about what is economically sound.

The end result is a hybrid of both interests. For example, San Francisco charges sales taxes, known to be regressive and punishing to poor people, but at least you know you are paying them on a ticket. Other countries, like europe, hide the VAT taxes, so it looks like you are not paying taxes at all. VAT reaches 10~20%, sales taxes in SF is around 6%.

Making it explicity DEFINITELY reduces it.

> Other countries, like europe, hide the VAT taxes, so it looks like you are not paying taxes at all.

That is not true at all. In all European countries that I can think of you get to see the whole price, including VAT so that, you know, you can actually tell how much the product is going to cost you. The composition of that price is then shown, often in smaller font. This is true of price stickers, receipts and invoices.

I do not find it the least bit misleading, and would be rather annoyed if a cashier told me to pay more money than the price sticker indicates.

Parent did not say that it is misleading.

The claim was that the tax caused price increase is hidden in the overall price.

And while the reasons for that can be plentiful (even consumer protection, if wanted) one effect is certainly and obviously that it hides the amount of sales tax you pay.

The VAT is usually declared somewhere in the bill.

It is very misleading: do it the other way around and people would complain about the tax constnatly, which is what people do in the US and in Canada.

> Withholdings exist now as a forced savings plan

A pretty lame forced savings plan that nets you zero interest. I'd rather park the money I expect to need to pay in taxes in at least a high-yield savings account and get a couple percent rather than let the gov't have it.

But this ignores the fact that the US income tax system is actually a pay-as-you-go system, not a "you owe your taxes every April" system. You'll note that if you fill out a W-4 form such that your employer doesn't do much or any withholding, you'll find you owe late-payment penalties come April.

> My bet is that within the first year of this taxes would be massively reduced.

My guess is within the first year, they'd be reformed on administration to put less needless pain on taxpayers. My guess is also that with the needless administrative headaches so visible, it would actually make it politically feasible to pass tax increases that would otherwise be impossible, so long as you also deal with the needless administrative headaches.

Plus, I'd guess that even before that, every single politician attached in any way to creating the administrative headaches would be hounded out of office, or worse.

Yeah ,withholdings are garbage from an anti-tax pespective.

Great example of that today is that most americans believe the trump tax reform didnt help them (only 17% believe it helped them) but it literally and factually increased the income for 80%. At least one reason for that is that withholding was reduced, but refunds were reduced as well. Availability bias makes people remember refunds, but not their monthly payments.

It helped them until they expire:

> The law creates a single corporate tax rate of 21%, beginning in 2018, and repeals the corporate alternative minimum tax. Unlike tax breaks for individuals, these provisions do not expire [in 2025].

https://www.investopedia.com/taxes/trumps-tax-reform-plan-ex...

A better way to do 2 would be to do away with withholding. After a year of that we’d see a radically different tax system.

Forcing everyone to make quarterly estimated payments would lead to riots in the streets.

Nah, no quarterly estimated payments. You just get your whole salary up front and you're completely fucked in April.

It might be more effective if we moved filing to the first week of November.

Doing that in absence of all other changes would likely have a highly positive outcome in the medium/long term (for tax reform at least).

Interesting in theory but in practice most Americans do not have the financial literacy to budget properly to meet taxes.

What happens when you don't have the cash to pay? Do we then see a whole new sector of predatory loans? Imprisonment? Increasing unpayable fines? None of those are good ideas, yet when things like this happen, our system has already fallen into these pitfalls. Witholding is an essential idea.

What would be nice is if we make the easy filing system but explicitly highlight the amount you paid in taxes compared to your income. Most people only judge on refund amount and rarely check the math on the exact taxes owed.

This is actually how things were done pre WW2. If people were able to budget for it then, why not now? The current system makes filing taxes and getting refunded seem like a reward, it should probably be a bit painful to do your taxes.

Without the painful transparency, it becomes too easy for the government to nearly invisibly turn up the tax rate on individuals to pay for whatever boondoggle or foreign war they see fit.

> If people were able to budget for it then, why not now?

A failing public education system and increasingly consumerist culture that encourages bad spending habits using psychological advertising tricks, to start. Go look at how little savings Americans have currently as well, which has been covered ad nauseam by most news outlets in the past few years.

> Without the painful transparency, it becomes too easy for the government to nearly invisibly turn up the tax rate on individuals to pay for whatever boondoggle or foreign war they see fit.

Given that it directly affects take-home pay, any significant change is pretty noticeable. Heck, even Trump's very small changes for the middle class were noticed on paychecks slightly, though there was also an unequal decrease in witholding that made people's refunds smaller.

> A failing public education system and increasingly consumerist culture that encourages bad spending habits using psychological advertising tricks, to start. Go look at how little savings Americans have currently as well, which has been covered ad nauseam by most news outlets in the past few years.

While these may play a small part in why people couldn't budget for it now, I think a bigger part of it is that income tax just did not apply to most people in as large of sums that it does today.

For example. The lowest tax bracket in 1940 was 4% and went from $0-4000. Median income at that time in the US was about $950.

Using the tax brackets to measure how much we pay in taxes is incorrect. There are things like Earned Income Credit and other credits that generally relieve the tax burden completely from lower income earners.

Check out https://taxfoundation.org/summary-federal-income-tax-data-20... for an analysis on 2015 US taxes. The bottom 50% of the US paid an average of 3.59% of their income. MarketWatch claims that 44.4% of Americans pay no federal income tax at all: https://www.marketwatch.com/story/81-million-americans-wont-...

Far fewer people were subject to the income tax at the time. The average Joe who couldn't read well or do much arithmetic didn't have to worry about it. For this reason the Social Security tax was implemented as a payroll tax.

The tax was intended primarily as a tax on the wealthy or middle class, but over time by not adjusting the standard deduction/exemptions, more and more people ended up paying the tax. You could also make the argument that more and more people became middle class.

Income taxes in the US applied to a much smaller segment of the population before WW II than they do today.

A situation worth getting back to, imo.

Which taxes (if any) would you prefer?

The point isn't so much that people are taxed. It's that they are taxed by a monolithic out-of-control bureaucracy that has grown much to large for anyone's good. To add to this, I'd be 100% ok if my tax bill was flipped such that the federal government got what my local government had gotten and my local government got what the federal government had gotten.

I’m curious as to how you think your proposed structure would be significantly different from the structure under the Articles of Confederation. It seems as though we’ve already tried having minimal revenue raising structures for the federal government, learned that such a structure does not work well at international scales (240 years ago - we’re even more globalized now) and moved onto a more productive form of taxation.

The things we are spending money on (besides arguably defense) have next to nothing to do with working at international scale. Furthermore, while I'm not advocating we return to the era of AoC, the power granted via the current Constitution does not bestow the power, size, and scope of things that the current federal government has embraced.

Well, one thing that would simplify things and reduce the number of taxpayers that have to deal with filing returns is to simply exempt people who make less than a certain threshold, perhaps $40k. People making so little money are already struggling, so why do they need to pay taxes, and worse, spend time and money filing tax returns for that?

That's already effectively the case, though the numbers are different. If you're married and make under $24k per year, you don't pay tax. (And other credits that low-income people often are eligible for can increase that number.) It is annoying because you still have to file, and if an employer withheld anything, you have to wait until April to get it back.

I meant that it would be nice if people with low (and even middle) incomes weren't saddled with having to file a tax return. It's a huge pain point for people struggling to make ends meet.

This would probably require some simplification of the tax code.

"becomes too easy for the government to nearly invisibly turn up the tax rate"

Or not.

Source. I live in a country where the vast majority have income taxes handled by their employer. It would still be front page news if income tax rates increased or decreased.

Painful transparency is just pain.

It would be front page news for a day then people would forget and you'd never hear about it again.

Do it in the US and it's front page news on the day and then it's on the second and third pages January through April the following year.

That's not my experience. The UK has automatic taxation but the current government lowered effective tax for most people this month and parties make tax-rate pledges during election campaigns.

That doesn't really disagree with what I said.

How many days is it reasonable for something to be front page news? Personally I'd prefer 365 different headlines then the same one for 4 months straight.

How much are income taxes in your country compared to the US?

Its UK, so between 20% and 45%.

It's actually a little ironic who introduced the idea of tax withholding. It was Milton Friedman and little did he know that federal tax withholding would allow the government to grow larger than ever imagined.

> Without the painful transparency, it becomes too easy for the government to nearly invisibly turn up the tax rate on individuals to pay for whatever boondoggle or foreign war they see fit.

This narrative is based on nothing. The overall tax rate has been basically flat bouncing between 15% and 20% since WWII[1].

[1] https://en.wikipedia.org/wiki/Income_tax_in_the_United_State...

> Without the painful transparency, it becomes too easy for the government to nearly invisibly turn up the tax rate on individuals to pay for whatever boondoggle or foreign war they see fit.

Non-sequitur. Taxes are already seen on every pay stub and tax return. Even if taxes weren't explicitly state, simply having less money is painfully transparent.

If thats your argument, then you must agree to do away with witholding, there is no downside to the rational actor.

Reality is a bit more complex than that.

But if I were to design a tax system, it likely wouldn't have withholding. I'd probably mess around with some weird purely transactional/continuous tax system though.

At least if you're using the tax prep software I did it offers a 'payment plan', which seems like an upfront way of asking to have wages garnished post-taxes due, instead of before (like W4?s do)

This is something the IRS does directly to encourage people to file even if they can't afford to pay right then. This helps with cases like self-employment income or capital gains where you can end up owing at the end of the year even with W4 withholding for your primary income stream.

The penalty for not paying is much lower than the penalty for not filling, if you owe.

It's possible your tax prep software does their own version as a middleman, but the IRS offers it directly through the same system that quarterly estimates are paid.

> What happens when you don't have the cash to pay?

You ask as if it would be a new concept to penalize people who don't pay their taxes...

There are clear laws on the books for tax evasion. No need to doubt about what happens.

Here in the UK we receive a letter from HMRC saying how much I'd paid (in income and NI, not counting sales tax, fuel taxes, etc), and where it goes.

https://www.gov.uk/government/news/millions-start-receiving-...

I've always thought it would be better to replace the income tax with a national sales tax. Then, for those who earn less and have to spend a greater proportion of their income on essential expenses, the government would credit them through their employer's paycheck (essentially the opposite of what federal withholding is now). For those who earn more, they would receive less credit or won't receive any credit.

What's the benefit compared to what we have now?

Basically, we wouldn't have to go through the process of filing taxes every year, and we wouldn't have to worry about the potential bill and penalties if we didn't have enough money withheld from our paychecks in the last year.

We would have to file to get the proper credit, though, right?

The W4 form should be sufficient (since it's used to determine the credit, if any, you receive per paycheck). You shouldn't need to file a 1040. Your employer would file the W-2 form which would allow the government to determine your income for the purposes of the amount of credit you receive per paycheck.

So any income other than as a W-2 employee doesn't count influence your credit?

This includes capital gains, rent collected from tenants, AdSense revenue.

The right way to handle this stuff is not immediately obvious to me.

Isn't that income also reported to the government via 1099 forms or similar? Do those who make less money typically also have income from sources such as collecting rent or capital gains?

I suppose that reporting does happen or at least could be made to happen under the new system.

I used to make $80k per year in salary(which is far less than most of the top decile in the USA) and in one of those years had over $10k in capital gains. In the same year I thought about buying a house to rent out. I ultimately didn't do it, but if I had, then I would have had to declare the income as part of my tax return filing process. Just as one data point.

Wouldn't that be regressive, in the sense that richer people spend a lower proportion of their income?

Plus they have the means to spend their earnings abroad.

But a fixed credit could offset some of those concerns.

> Wouldn't that be Wouldn't that be regressive, in the sense that richer people spend a lower proportion of their income?

The paycheck credit I proposed should address that. Plus rich p eople definitely spend a lot more compared to others.

> Plus they have the means to spend their earnings abroad

While that's true, they certainly could be taxes on major purchases. For example, I could buy souvenirs abroad without passing tax on them, but I wouldn't be able to buy a car and not pay the tax before titling it here.

There's a couple of big problems here: 1) Rich people spend a lot of their money on real estate, so unless you're going to come up with a good way of taxing that (which we don't do now; property taxes are local), rich people aren't going to be paying much in taxes, and 2) Rich people spend a lot on foreign vacations and travel, which is untaxable domestically for obvious reasons. Sure, they still have to pay titling tax on cars, but when they're spending tons of money on foreign hotels and such, cars are a drop in the bucket.

In short, there's a reason that no other developed nation taxes this way, and they all have income taxes. And all those other nations manage to have relatively simple taxes for most taxpayers that don't require paying H&R Block to file for them.

> Rich people spend a lot of their money on real estate, so unless you're going to come up with a good way of taxing that

The same thing can apply to real estate as it does for cars. That is, a sales tax you pay when you purchase the home. And the sales tax doesn't have to be a flat amount. It could be a greater percentage of the value of the home for homes that are valued at several million dollars as opposed to those that are worth only several hundred thousand dollars.

> rich people aren't going to be paying much in taxes

Isn't that the case currently (compared to what they could be paying due to all the loopholes in the current tax code)? If we focused on taxing transactions as opposed to possessions and income, then the rich could be taxed far more. Invest in stocks? Then you can be taxed when you buy them. Invest in real estate? Then you can be taxed when you buy property, etc.

> Rich people spend a lot on foreign vacations and travel, which is untaxable domestically for obvious reasons.

That is true, but it seems that the US is one of the few nations in the world that states that you have to pay taxes on income you earn outside the country (assuming you don't pay taxes on it in the other country). That said, I think that we should focus on the majority of tax payers in terms of making how they pay taxes easier and hopefully more fair.

> there's a reason that no other developed nation taxes this way, and they all have income taxes. And all those other nations manage to have relatively simple taxes for most taxpayers that don't require paying H&R Block to file for them.

I don't pay anyone for filing taxes, but it takes days to read through all the instructions for the 1040 form and other associated forms to see what applies to me and what doesn't. Personally, if I was able to take care of my tax obligation by just buying various things throughout the year and getting my full paycheck, then I would certainly be happier and not have to essentially waste several days every year figuring my taxes.

Wouldn't that make the lower class the only ones that had to file anything at all (for the tax credit), put temporary financial strain in place when waiting for credit for purchases and actually make the IRS more complicated and onerous for most Americans?

I get the attempt to sidestep the regressive counterarguments normally in play with sales tax replacement systems, but I think this system would be equally regressive.

> Wouldn't that make the lower class the only ones that had to file anything at all (for the tax credit

They shouldn't have to do anything more than file a W4 whenever they start a new job or their income statutes changes. That's certainly less burdensome than even just the 1040 form now.

> put temporary financial strain in place when waiting for credit for purchases

What I proposed would be a credit that would be applied to every paycheck, much like the withholding we currently have applied to every paycheck. So the wait for credit wouldn't be ant longer than it currently is before the next payday (assuming they're living from paycheck to paycheck).

> and actually make the IRS more complicated and onerous for most Americans?

Having this credit calculated based on the reported earnings on the W-2 form and filing a W4 is certainly less complex than just filing the 1040 form. Plus, most people wouldn't have to worry come later this month if they haven't had enough withheld from their paychecks in the last year.

> but I think this system would be equally regressive.

If people with less income are getting a credit on every paycheck and they spend less overall compared to people who earn more and get less or no credit on their paychecks, then why do you believe that the proposed system would be equally regressive?

> They shouldn't have to do anything more than file a W4 whenever they start a new job or their income statutes changes.

This works if everyone has a exactly one job at all times that is their sole source of income, but fails otherwise. Of course, if the conditions it works were always true, irreducible complexity (that is, excluding the complexity that is maintained simply because both conservative politicians and tax-prep businesses have an interest in making tax prep onerous unless you pay for an additional service) for taxpayers of the current to tax system would be significantly less.

It doesn't, even in the case it works, address the problem that a regressive tax with a flat credit is...still a regressive tax.

> This works if everyone has a exactly one job at all times that is their sole source of income, but fails otherwise.

The current W4 form takes dual income/second jobs into account and adjusts the withholding based on that. Changing that withholding to a credit based on income, number of jobs, dependents, etc wouldn't be any worse than it is now, but eliminating the 1040 and other associated forms would definitely be a big benefit.

> even in the case it works, address the problem that a regressive tax with a flat credit is...still a regressive tax.

We have tax brackets now based on income level. Would basing a credit on similar income brackets be any different? Or are you claiming that out current tax system is regressive and my proposal wouldn't fix the underlying issue?

I'd say within six months we would be back to the same tax system. People would either get a monthly bill or withholding would be reintroduced. Payroll processors would give people the option to do the withholding. As an experiment we could try to switch to withholding taxes on a quarterly basis. There would be lots of trouble as people hit that first quarter's reduced paycheck.

Sure.. Having had to pay estimated tax before, i say make everyone do it. Then we'd get rid of these taxes like no ones business

Checking math? You must have simpler taxes than I do. By the time I’m done entering various non w2 forms I don’t even know what math I’d check.

I would classify causing mass pain for political gain as purely evil.

So:

Politics is evil...

Checks out.

Right because filing your taxes is the moral equivalent of strapping the population to the torture rack

He isn't claiming paying taxes is bad, he's claiming (correctly) that lobbying for a complex tax code and to prevent the IRS from offering a free-filing tool because it competes with entrenched tax-filing companies is evil, and it is.

Yes, you're right that people in that camp are unlikely to review their tax filings from their 3rd party. However there is an incentive for that 3rd part tax company to save their customer as much as they possibly can. The bigger the refund, the happier the customer and the more likely they are to come back next year and give you more money. In the Planet Money episode they spoke with the Republican dude and his biggest point was that his goal was to support a system where people paid as little tax as possible, and this current system we have is just that.

If complicated taxes are a Republican anti-tax strategy, why did Reagan and the 1980s republicans pursue a strategy of vastly simplifying the tax code?

Doing taxes is a tax -- in hours and fees. Only the wealthiest people who can spend $10K on tax prep to save $100K via loophole deductions, oh.

Simplifying the tax code in the 80s was the public sales pitch. The real strategy was to dramatically cut taxes on the wealthy (e.g. by eliminating the top several marginal tax brackets).

But keep in mind, the Democrats controlled congress, so reform had to gain bipartisan support.

This chart doesn’t show evidence of a particularly dramatic cut in effective rates for the top 1% of earners:

https://taxfoundation.org/taxes-rich-1950-not-high/

The top 1% of earners today earn a dramatically larger share of total income than the top 1% in the 1950s.

If taxes kept up, they would have noticeably higher effective tax rates than they used to have.

P.S. The “Tax Foundation” is a right-wing “think tank” (i.e. activists masquerading as researchers) funded by billionaires and corporations.

I would however recommend reading the whole paper they cite, http://gabriel-zucman.eu/files/PSZ2017.pdf

> Government redistribution made growth more equitable, but only slightly so. After taxes and transfers, income in the bottom quintile stagnated (+4%) over the 1980–2014 period while it grew a meager 21% for the bottom 50% as a whole. That is, transfers erased about a third of the gap between macroeconomic growth (61%) and growth for the bottom half of the distribution (+1% before government intervention). Taxes did not hamper the upsurge of income at the top, which grew almost as much as pre-tax.

> The top panel of Figure II provides a granular view of who benefitted (or not) from growth, by showing the annualized real growth of pre-tax and post-tax income for each percentile of the distribution over the 1980–2014 period, with a zoom within the top 1%. There are two striking results. First, the vast majority of the population—from the bottom up to the 87th percentile—experienced less growth than the (modest) macro rate of 1.4% a year. For instance, the 10th percentile declined by 0.6% a year pre-tax (+0.3% post-tax); the 30th percentile stagnated pre-tax and grew 0.6% post-tax; the 80th percentile grew 1.2% pre-tax (+1.3% post-tax). Only the top 12 percentiles of the population achieved a growth rate as high or higher than the macro rate of 1.4%. Second, even percentiles 88 to 98 experienced unimpressive income gains, between 1.4% and 2.2% a year—in most cases less than the macro growth rate of U.S. incomes for the preceding generation, from 1946 to 1980. The only group that grew fast is the top 1%, whose average income increased 3.3% pre-tax and 3.2% post-tax, with growth culminating at +6.0% a year for the top 0.001%. The top 1% has pulled apart from the rest of the economy—not the top 20%.

etc.

No-one paid the top brackets because the tax code at that point was riddled with ways to generate tax losses that reduced liability. The tax reform really was a good thing (unlike 90% of what happened under the Reagan administration)

https://en.wikipedia.org/wiki/Tax_Reform_Act_of_1986#Passive...

There is openly available IRS data on how many households actually paid highest bracket.

You are wrong that nobody paid it.

Forget Reagan, they claimed they were trying to do it last year. Remember the post card?

By cutting the ability to deduct SALT they made tens of millions of people who would have otherwise itemized do a simple 1040. While not a postcard it did greatly simplify taxes for many people.

That said, most of those people are still going to see it as a travesty because they had to pay a little more (god forbid people rich enough to have thousands of dollars of SALT pay taxes on the income used to pay that SALT).

> If complicated taxes are a Republican anti-tax strategy...

Republicans only last year substantially simplified tax filing.

about the only simplification on mine was that I no longer have to file that I have a full year exemption on the health care law.

However I do have to file an extra sheet of paper now just to fill out a single line for foreign address that's been removed from the 1040.

Are you talking about the postcard publicity stunt?

* https://www.youtube.com/watch?v=0LhKoefZ2QI

The idea is not to make the taxes deliberately complex, it is more about the notion of who is telling whom what is owed. A system where the citizen says "hey government, I think I owe you this much in tax because x" is fundamentally different than a system where the government says "hey citizen, you owe me this much in taxes, here's your bill".

In the second situation, the average (complacent) citizen will not look twice at the bill, but rather just pay it and get on with their life. In the former situation, the citizen is forced to have a 3rd party create a statement that says "I owe you this much because x" and because of natural incentives, the company will try to claim the maximum number of [incentives, loopholes, deductions, whatever you want to call them] so that the client saves the most amount of money. Of course the company takes its cut and I'm not arguing that greedy companies are the perfect solution. I'm just saying that there is more to the argument than simply it being a matter of lobbyists getting their way.

Except the tax preparation industry must be taking a significant enough cut to make it lucrative to spend money lobbying. Is that cut smaller than the total extra tax that would be paid due to mistakes in the auto filing system? I'm skeptical.

Tax preparers usually file federal taxes for free while charging a fee to file state and local taxes. That's where they make their money.

So basically even if the IRS wanted to create a system, they would be competing with a free system anyway?

And the IRS wouldn't go out and do a system for each state.

I suspect (but don't know) that they make more off of the various up-sells for people with more complex filing situations. Also, the free filing is marketing. It's their foot in the door. If something like rapid return happened, they would lose that strategy.

If republicans wanted to make a system where people would save the most money we'd just reduce the tax loopholes and simplify the system - the system we have now actually only has the wealthy pay the least money.

Some would say the republicans think this is a feature.

How do you differentiate deductions from loopholes?

Easy. Any deduction you don't use is a loophole, legislative compromise of yesteryear or not.

This is not true. There are tons of bread-and-butter deductions for the middle class. If you do a cross country comparison of taxes, the biggest difference between the US and Europe is not the rich. It’s the folks making $40-100k, where our low brackets plus tons of deductions (mortgage interest, child care, child credits, etc.) drive the effective tax rate way down

Folks in Europe comparable to the ones you are talking about here (i.e. the 50th–85th percentile) are generally much more financially stable/comfortable than in the USA.

Varies a lot from country to country, but in general they have e.g. more-or-less functional healthcare systems, better parental leave, more vacations, easier access to childcare, stronger worker protections, ....

A lot of what you mentioned on our side of the pond is paid for by our social security contributions, not from our taxes though.

Social security contributions are a tax, just one earmarked for a specific budget rather than the general fund.

You can't really compare tax rates without considering other mandatory costs like health care. Include health insurance and the numbers don't look so good for the USA.

You're not wrong, but it should be noted that in some countries (DE, CH) people also pay health insurance premiums to private companies as well. It's just in those countries health insurance is non-profit (unlike the US).

Just a note that the mortgage income deduction, which is a travesty, benefits high-earners far more than low-earners; something like 70% of its benefits accrue to the upper class.

> The bigger the refund, the happier the customer and the more likely they are to come back next year and give you more money.

Doubt it. We're talking 1040EZ filings by people in the 22% and lower tax brackets, not complex itemizations typical of 24%+ tax bracket filers.

The 5-digit PIN from the previous year's e-filing that's required if you want to expediently e-file this year is enough. Most people aren't going to remember that detail, but the e-filing service you used last year never forgot and they'll gladly auto-fill that block for you as a repeat customer.

The 22% tax bracket goes well above the median income. Meanwhile, in 2010 less than 15% of people filed the 1040ez.

Bottom end of 22% tax bracket is ~$43k/annum based on 2019 Notice 1036...that's a $23k margin before hitting the $66k AGI threshold for free file offerings.

That number is more like ~25mil, or just over 18% in 2017; +4.6% over previous year[1].

EDIT: I suppose I should probably ask what point you were trying to make? I didn't quite track where you were going with all that.

[1] https://www.irs.gov/pub/irs-soi/17in01pl.xls

1040EZ was dead as of this year. Have you filed your taxes?

> The 5-digit PIN from the previous year's e-filing that's required if you want to expediently e-file this year is enough. Most people aren't going to remember that detail, but the e-filing service you used last year never forgot and they'll gladly auto-fill that block for you as a repeat customer.

I was not asked for such a thing, and used a different preparer this year. I was asked to set a PIN for 2018, but I have never had to use a PIN I previously set. I have always been asked for the prior year's AGI for verification. What software asked you for a prior year's PIN to file this year?

There're at least 12 private companies listed by the IRS who offer some form of free filing service[1]. Direct from the horse's mouth[2] (my emphasis added):

> When self-preparing your taxes and filing electronically, you must sign and validate your electronic tax return by entering your prior-year Adjusted Gross Income (AGI) or your prior-year Self-Select PIN.

To be sure, a filer's prior-year AGI would serve the purpose almost[3] as well. It doesn't even matter what "code" is actually required of the filer, only that one is required at all for the convenience of e-filing. The point is it just needs to be something arbitrary enough for free filers to easily misplace record of but is routinely captured as yet another database entry by service providers. That's how repeat customers at the bottom end of the economic ladder are maintained...none of this "maximizing returns" feel good theory that the parent spoke of.

[1] https://apps.irs.gov/app/freeFile/

[2] https://www.irs.gov/individuals/electronic-filing-pin-reques...

[3] maintaining record of prior-year AGI has utility beyond just tax returns--e.g. applying for benefits and/or services which are limited to people below certain income thresholds--but the self-select PIN is truly arbitrary and serves no other purpose, so my gut feeling is it's a more effective mechanism

> To be sure, a filer's prior-year AGI would serve the purpose almost[3] as well. It doesn't even matter what "code" is actually required of the filer, only that one is required at all for the convenience of e-filing.

It matters to your statement, which is wrong as you made it.

It matters whether the "code" needed is something the taxpayer made up for this one specific purpose or is a number readily available on the form they are supposed to print and file, and can thus easily retrieve.

> maintaining record of prior-year AGI has utility beyond just tax returns

Everyone should be retaining at least three prior years of tax returns, so anything that helps prod them in that direction is a good thing.

> but the self-select PIN is truly arbitrary and serves no other purpose, so my gut feeling is it's a more effective mechanism

More effective mechanism for what? I personally think they should just ditch the PIN entirely and rely solely on AGI, for the reason I stated above.

It's quite apparent that you've completely missed the overarching point of this discussion.

> It matters to your statement, which is wrong as you made it.

What part exactly? You speak from narrow anecdote in your limited encounter with 1, maybe 2, online service providers and have provided precisely zero supporting reference otherwise. I've provided corroborating citation direct from the IRS.

> It matters whether the "code" needed is...and can thus easily retrieve.

No, it really doesn't. All that matters is that it's easily misplaceable or forgotten...the more arbitrary and useless, the better it'll serve the objective role of vendor lock-in in a world where options abound and financial incentives to the filer are the same as a direct consequence of the inherent simplicity of their case filing.

You've also made certain unjustified presumptions on the ease of retrievability. Once upon a time, at least one well known service provider would produce a digital summary of your filing only after the IRS had accepted the return (not to be confused with receiving it), and this personal copy was generated for free if and only if it was downloaded before the tax year rolled over. So if you forget to download it for personal record, they'd gladly reproduce the summary any time in the future...for a nominal fee. In the past, this dark pattern disincentivized e-filing with a different service provider in subsequent years, and it wouldn't surprise me if some still pull this tactic.

> Everyone should be retaining...

What everyone should be doing from a records management perspective is both completely irrelevant to this discussion and disconnected from happenings in the real world, especially as it pertains to individuals on the lowest rung of the socioeconomic ladder. It might surprise you at how many people actually fail to maintain a copy of their vehicle's registration and proof of insurance in the only vehicle that it would be applicable to, or how many people don't even have a copy of their own birth certificate. These are pretty damn important documents, yet surprise: the human condition is real and people are inherently lazy as fuck. That you actually expect the poorest and least educated in society in general to maintain annual records on something as obtuse as tax returns is quite naive. Do you really think the tax return service industry isn't actively exploiting the crap out of basic psychological shortcomings of society to the benefit of their bottom line??

> More effective mechanism for what?

It's the whole point of my original remark: identifying the fundamental mechanisms which are largely responsible for producing repeat conversion in an industry where options abound, the product is free, and little to no differentiating factors of value exist between competing service providers.

At the ass end of the totem pole, the game of repeat conversion isn't about which service provider is going to somehow provide a filer with the biggest tax return as the parent asserted, and to which I disagreed...we're talking about candidates who qualify for free filing; these are the simplest of turnkey cases, hence why the service is offered for free to begin with! It doesn't matter what you think about the pragmatic utility of the self-service PIN because the fact is it's one of two options mandated by the IRS as a requirement to e-file. Some service providers will require you to produce last year's self-service PIN to e-file, some will require last year's AGI...wouldn't surprise me if some require both.

> However there is an incentive for that 3rd part tax company to save their customer as much as they possibly can.

lol. No.

First of all, that myth already assumes a complicated tax code which requires a for-profit middleman. We should be able to minimize our tax exposure without paying corporations.

Secondly, the vast majority of filers don't qualify for loopholes. When every tool offers the same refund, competition is for the cheapest/simplest tax experience... while the industry as a whole is strongly incentivized to create an ever more convoluted system, ensuring their yearly rent-seeking continues.

If private tax filing products saved money for their users, as compared to a hypothetical, IRS-produced product, what are these companies worried about? They'd have a clear competitive advantage over the IRS product.

How could they save money, though? The tax code is the same in both cases, and most people's financial lives are not complicated enough to make it any kind of challenge to get the best refund.

Then the conclusion is the same: no reason not to let the IRS provide their own tax filing service.

> The second argument blows my mind because I can't imagine that the set of people who would just pay the IRS without double checking their math are reviewing the tax filings from the third party they use right now. In other words, I would really like to see a survey of how people currently file their taxes in comparison to how they think they would if there was an IRS free filing for everyone or something like the ReadyReturn mentioned in the NPR story.

I'm actually of the second opinion and, aside from two years dealing with medical issues with my wife, I've filed my taxes by hand for my entire life, and think everyone else should too.

There's a few companies that are allowed to efile that do very little besides convert the IRS paper forms to web forms and do the arithmetic for you. They tend to be a lot cheaper than TurboTax/H&R Block. I've been using one of them (OLT) the last two years has worked well enough for me and efile processes a lot faster than paper.

I also believe people should be filing their own taxes and understanding how the system works. I've owed money the last two years by underestimating self-employment taxes, so this year I've set up a spreadsheet that tells me how much I'll owe each quarter with all deductions built in and a tiny bit of overestimation.

I make sure to mail them in so uncle sam has to waste his money paying an actual person to input my data.

It’s worth it to me to pay a couple hundred dollars not to deal with it it and have someone else's signature on my return - that being said I have a back of the envelope spreadsheet that estimates my tax liability using about 5 inputs and is usually pretty accurate vs my prepared return

Are you under the impression that having someones signature on the return means you do not owe tax penalties if they do it wrong? If you read the copious amount of detailed instructions the irs provides, you'll soon find that thats not the case

Link to audio:

https://www.npr.org/player/embed/708195702/709698927

Conspiracy theory: what if IRS (the Govt) when designing the free software with all the options--thousands and thousands of pages https://www.politifact.com/missouri/statements/2017/oct/17/r... --lean on the side of the government when in doubt? Intuit, HR Block etc have some sort of guarantee and incentive to save users, IRS not so much. Doesn't even have to be a conspiracy theory ("We need the money so let's make them pay $xx Billion more this year") just the way incentives work. Maybe simplify the code first?

The IRS outsources the development of the free software.

All the IRS does is publish the tax code in a specific XML format. MEF (mechanized e-file) is the interchange specification. It's rather a shame there's not more open source effort around tax filings...

>It's rather a shame there's not more open source effort around tax filings...

This is one place where FOSS just isn't going to work. Let me ask you: are you willing to invest a lot of your time and effort into contributing to such a project? No, I didn't think so. Me neither.

Here's the problems with it: 1) It's not very fun. Volunteer coders don't want to work on something as deadly-boring as tax filing. 2) It's USA-only: lots of FOSS volunteers are outside the US. They're not going to spend their time on a tax tool they're not going to use. 3) It's constantly changing. The tax code changes every single year. Lots of FOSS projects become mature at some point, and only get maintenance or occasional feature additions. Most do not work according to a schedule. The IRS requires you to file your taxes on April 15, and they release the changes to the tax code a certain amount of time before that, so a project would only have a certain window of time to incorporate all these changes. 4) The risk to users is high, since there's no one really willing to guarantee this product. Of course, bugs in tax-prep software don't absolve taxpayers, but there's still a certain appearance that a big company standing behind a product makes it safer.

maybe not exactly the same but it is aguable if the majority of people had to write check to pay their taxes instead of having their taxes auto-deducted by their employer they'd push much harder for lower taxes and less government spending

it's much harder to make $40k a year and write a check for $5k than to just get a net pay of $35k with the $5k never reaching your bank account. (note: No idea what income tax is at $40k)

PS: don't have an opinion if this would be a good or bad idea. can see it both ways

Why is it "arguable"?

What you suggest is exactly how it worked before 1943 and there was a massive expansion of government, government services, and tax rates between 1913 and 1943.

The actual historical evidence strongly suggests this theory is spurious and easily dismissed.

Congress sells out the american people. Congress doesn't work for the American people. Congress works for moneyed interests (corporations). This is congress aiding crony capitalist theft

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