IRS Reforms Free File Program, Drops Agreement Not to Compete with TurboTax
propublica.org
propublica.org
>Under the new rules, participating companies also have to standardize the naming convention of their Free File version as “IRS Free File program delivered by [product name].”
Respect to ProPublica for their commitment to this issue. I first learned of the Free File deal from their reporting and enjoyed the HN comments on their articles.
On the 20-year fight to stop Americans from doing their taxes for free: https://news.ycombinator.com/item?id=21281411
On hiding Free File from search engines: https://news.ycombinator.com/item?id=19758126
On tax industry lobbying: https://news.ycombinator.com/item?id=21393758
Quality journalism.
The US is making great strides towards joining the rest of the civilized world in the 20th century, finally.
There´s nothing more common than tax collection: rich, middle class or poor. Why wouldn't citizens demand a public tax filing process? Even in Mexico we have an automagical tax filing process that makes:
a) The great majority of the population who perceives a salary not needing to file taxes.
b) For the rest of the people, those who don't do anything fancy, just click one button in a portal to do the filing, and everything is calculated by the tax authority.
c) For the small percentage that do more complex things (I'll say it is between 5% and 10% of the population) still can do it in the portal for free, or hire an accountant.
Except many people will try TurboTax or a competing solution anyway, just in case they can get a little bit of money back.
Tax evasion and overstating deductions are common partly because the IRS doesn't have access to the information necessary to verify everything -- that's the same information the IRS would need in order to pre-fill tax forms accurately for the 1/3 of taxpayers who itemize their deductions. 1/3 of American taxpayers a pretty big market for TurboTax and similar services to thrive in.
About 20% of people (particularly low income people) have simple tax returns and file using 1040EZ. If the IRS computed that form, then what they send out would be ideal for the majority of taxpayers. So it would benefit those by eliminating the expense of tax preparation without actually costing them more in taxes.
Then there are those like myself who fall into an in-between area. I have more complex taxes, although not as complex as a lot of people, but would gladly pay more than is strictly necessary in order to not have to bother with figuring them out. In fact, I already do, in the form of paying a tax preparer (I fully consider the expense of tax preparation as a tax itself.)
Those whose taxes are more complex are very likely aware of that fact, and would continue to do their own tax preparation.
Also, if the IRS provided a prefilled 1040EZ, that would make computing your own taxes easier because you could use the figures supplied as a reference.
2017 Form 1040EZ goes up to box no. 14
2017 Form 1040 goes up to box no. 79
2018 Form 1040 has no boxes for $ amounts!
2018 Form 1040 Schedules 1-3 is where they all went, if you needed them.
2019 Form 1040 added boxes back up to 11b
2019 Form 1040 Schedules 1-3 also exist
For example, the only slightly complex thing about my taxes are capital gains and interest. It would not be hard to have my brokerages/banks coordinate with the IRS to autopay my taxes on that as well, just like my income taxes are auto paid.
Americans on the whole don't trust their government quite a lot. If the government just said "you owe X in tax this year", nearly everyone's knee jerk reaction would be that the government is overestimating and cheating them.
On the other hand, you can pay a flat fee to let a third party fight the government on your behalf. That's something that many Americans like the sound of.
I think the real problem is that the tax system is complicated, and turbo tax does a good job of making it feel even more complicated than it is. You can fill out your own 1040EZ, if you even know what that is, but people have this sense that the tax system is full of loopholes and they want to exploit that.
Well, this is a bit different in that regard. Last time I tried it, it was free to put all my info into turbo tax and see what my amount owed would be, and then it would be a fee to actually file. I assume most tax software works that way.
So it's actually very easy and objective to see the performance of these systems. It would obviously be a big hassle though to spend a whole afternoon playing with all the different tax softwares.
"there should only be one optimal answer once the facts are already created"
Yes, there should be. The reason why accountants can make a living filing taxes for fee is because that optimal answer is often difficult to find.
"Paying for tax filing itself is basically a low-level scam."
Not for me it isn't. If a private company can create a service that makes filing a lot easier and safer, I will gladly pay the fee.
That's why most governments that do self-declaration services make it so you can review what tax rules they based amounts off of. It's not like tax law is super easy elsewhere and without complications. I should never have to pay a fee just to declare taxes to reconcile things for the IRS. That is a basic governmental responsibility to give me that service for free.
Right, but since no regular person understands the rules, they can't really double-check. Especially since sometimes you can file stuff under different rules that produce different results, despite both being valid (I say this based on experience from another country, but I suspect the same is true in the US).
Yes, such circumstances exist in the US too. For instance married couples usually file jointly, but they could chose to file separately which results in a different effect.
I think you buried the lead here. American public schools, part of the American government charged with teaching children and funded by taxes, don't teach kids how to pay taxes to the American government (maybe it sometimes happens, but it's certainly not standard.) It's ludicrous.
Don't believe me? Simply don't file your taxes next year. You will get a letter from the IRS sent to you that literally tells you what you owe. They know all of your income down to the cent, they know what you owe. This automagical system exists. Yet the only way to "use" it is to either not pay your taxes, or to pay them wrong.
Yet every year, the IRS makes us go through the charade of putting our taxes together and all the work (and money) that it entails, when the whole time they know what we owe already and expects us to pay that unless we can prove them otherwise.
If you have a W-2 job and all your investments are in a bank or brokerage, but they still don't know your filing situation, dependents, other income, or deductions.
Not that I'm justifying the current system. It's just that the IRS only knows the big picture for most people. The rest is complicated.
Under the current system, people aren't sure what the government is aware of. Because we get in trouble for leaving things off, we are more likely to report everything.
The IRS information is at times comically incorrect in fact.
99.999% of the US population is not trading $20 million a year in stocks, and everyone else here is merely talking about the 95% of the population that has straightforward tax returns.
Make people file a tax return, but auto-populate it with the data the government already knows. And at the end include a tick box clause that essentially says "I have included everything and reviewed the autofill info, and if I have omitted anything later discovered I will be prosecuted".
20 seconds to file your taxes if there's nothing unknown. Very easy to add extra info. Covers the tax departments back of you intentionally mislead them.
To even imply otherwise, and I've seen other comments say they shouldn't / don't have this already in place... even when social media companies are slurping data every way they can... seems absurd.
All that said, you should go through each item and correct their mistakes. Those matching systems aren't perfect.
This is all explained in the letter they send you should you fail to file.
The Clinton years were the twilight of the fantasy of abusing inbound entitlement tax flows for spending in the present and ignoring the future. That government spending party trick - kicking the can down the road - is now exhausted on a normalized basis, so we're rapidly heading toward perma QE as the only solution remaining other than very high taxation across all major income groups.
That's >22 NASAs-worth of money, if you care about space exploration. It could be roads or high speed trains or education or healthcare or whatever you care most about.
Instead it's going towards paying interest on debt incurred for cheap political wins in the past...
I disagree with that definition. In a limited government, taxes are only for specific purposes, not any service that might be commonly (or even universally) needed/wanted.
You can agree or disagree about whether a limited government is good, or whether tax filing services should fall within those limits. But it's certainly not the definition of taxes to be for any and all "common services".
In the United States, and many other nations, the vast majority of taxes aren't collected from payroll. If that was the case, things would be easy. But there are hundreds of other ways that taxes are collected, and they vary from person to person.
More importantly, taxes aren't exclusively about revenue generation. They're used to encourage people to do or not do things: Save money, invest money, buy houses, have babies, buy cars, add solar panels, and thousands of other things.
There are plenty of people who shout "flat tax!" whenever this topic comes up. But they're mostly people who have only led simple lives where the IRS only touches them on their paycheck, or who don't understand the full range of how taxes are used.
They might be better if this were the goal if people could actual interpret what they're being encouraged to do!
Taxes sole purpose should be to collect money to provide services, Nothing else
they should not be used to socially engineer the society the way the government sees fit, that is not a free society or a functioning democracy/republic at that point
(FWIW, I'm generally in favor of this kind of "social engineering" when done by democracies.)
Because they don’t want to make it easy for the government to impose lots of taxes. Americans have the lowest taxes in the developed world. Not especially for rich people, but for everyone else: https://www.heritage.org/sites/default/files/inline-images/I....
This isn’t the work of some secretive cabal of billionaires. Rich people hire accountants to do their taxes anyway. The absence or existence of free tax filing doesn’t affect them at all. But a platform of “we’re going to make taxes painful so the government is afraid to raise taxes” gets a lot of votes. (In my view, is nothing bad about people being confronted once a year with the cost of the government to themselves. I just looked at my taxes for 2018 and concluded I’m taxed too little and would rather pay more for a government that offers more services. But people should be making that decision with eyes wide open.)
People aren’t paying attention to tax bills that are getting voted on. But when they do their taxes, they’re forced to actually work out how much they’re paying the government. A bill or invoice they get in the mail wouldn’t have the same effect.
As to the US system being unjustifiable, I think Europeans don’t really understand America. In an ideal world, I’d prefer a Swedish system with high taxes, lots of social services, etc. But Americans aren’t Swedes. They don’t trust their government, and they don’t really trust each other. A quarter of Americans polled favor their state seceding from the country (ranging from 20-34% depending on region). By comparison, only 15% of people in the Basque region of Spain want independence.
I live in Maryland, which is about the same population as Denmark and only moderately smaller than Sweden. It’s a “blue state.” Our capital is Baltimore. Schools in Baltimore spend 40% more per student than schools in Sweden, in a city where you can get a beautiful townhouse for maybe 1/4 of what it would cost in Stockholm. The schools should be amazing, right? No. They’re awful, with terrible test score and enormous gang violence. The city government is corrupt. Not in the way you probably think the US as a whole is corrupt (controlled by wealthy elite), but the sort of reciprocity that typifies developing countries. The former mayor has been convinced of felonies, and in February will probably receive a sentence of 5-10 years in prison.
So despite being a strongly blue state, we elected a Republican Governor by an overwhelming majority that promised to control spending, cancel public projects like transit lines, etc. Because we don’t trust (can’t trust) our government to use our tax dollars effectively.
So yes, there is support in America for things that make people think hard about how much they pay the government: https://www.youtube.com/watch?v=BcEhl5HfGMM. And it’s not irrational or crazy. Our situation is very different than what you face in Sweden.
Except they’re not working it out. They just have TurboTax do it then see they get a few thousand dollars for $35+ and a few minutes of work. Most people don’t understand that a tax return is money that was already theirs; They just see it as an extra paycheck.
I've never heard anyone promoting the idea of keeping taxes complicated to avoid higher taxes.
There's nothing inherent in complicated taxes that stops the government from raising rates.
Conservatives have long wanted the flat tax (file taxes on the back of a postcard) and lower taxes, so simpler lower taxes.
I think the reason it became so complicated was because businesses lobbied for special rules and tax breaks that made things complicated in the first place. Businesses are now setup to take advantage of these loopholes (Amazon passing $0 in taxes, etc.).
TurboTax was built as a result of complicated taxes and they lobby heavily against a simplified tax code.
It's not some cabal of citizens wanting to keep taxes complicated, it's the industries that benefit from the current tax code that wants to keep it this way.
Your theory is wrong.
Even if it could be done simpler, TurboTax and other tax prep companies will lobby against it.
You'd be hard pressed to find any government financial policy that isn't tied to business interests. The tax code is no exception.
2. Americans don't have the lowest tax rates in the developed world. Mexico, Ireland, Chile, Turkey, and South Korea all have lower tax rates[1]. And in some cases the governments provide more services with less money because they're not spending half their budget on occupying other countries.
[1] https://www.taxpolicycenter.org/briefing-book/how-do-us-taxe...
This. The American military is perhaps the largest and most wasteful social program on the planet. Americans spend way too much time trying to find their way around this elephant in the room.
To raise the percentage rates, politicians have to vote to raise those rates. Private filing means that everyone is very aware of how much they’re paying in taxes. It’s not just an invoice they receive listing how much was withheld. They have to recalculate it. That makes them much more sensitive about voting for politicians who vote for higher taxes.
> 2. Americans don't have the lowest tax rates in the developed world. Mexico, Ireland, Chile, Turkey, and South Korea all have lower tax rates[1].
I don’t think people would consider Chile and Mexico to be developed countries. You’re right that Ireland and South Korea are lower (depending on the year, Ireland cut taxes significantly recently). But they’re together with the US in the bottom band.
> And in some cases the governments provide more services with less money because they're not spending half their budget on occupying other countries.
I think it’s true that other countries do more with less. But it has little to do with the military budget. US government spending as a percentage of GDP is 38%, meaning all levels of US government spend $7.3 trillion annually. The military budget is just 10% of that, or 3.2% of GDP. That’s high compared to Europe, but not a big difference compared to overall government spending. The US military budget is proportionally where the U.K. and France’s was in the late 1980s, back when those countries had robust welfare states: https://worthwhile.typepad.com/.a/6a00d83451688169e2022ad3a0...
If the United States cut its military budget to the same proportional level as France, we’d have an extra $175 billion for other things. That’s not nothing, but to put that into perspective, we spend $970 billion a year on education (5% of GDP). We spend $1.1 trillion on healthcare and welfare for poor people. Cutting our military budget to European levels wouldn’t revolutionize our budget.
I'm not sure how you think private filing is related to manually filing your taxes. Yes, if taxes were just paying an invoice at the end of the year, that would make them less noticeable, but that's not a necessary component of private taxation. Adding up all your income and just calculating a simple percentage would create just as much awareness--probably more, because there's some clarity/transparency that is easier to understand.
In fact, I'd argue that a complex filing process puts a focus on where money is coming from, rather than where it is going, which is arguably much more important to make transparent to people.
> I don’t think people would consider Chile and Mexico to be developed countries.
Any basis you could have for not considering Chile and Mexico to be developed countries applies to large sections of the US (incidentally, they tend to be the parts of the US with the lowest taxes). There's more poverty in the parts of Alabama and West Virginia that I've visited than the parts of Ecuador I've visited.
> You’re right that Ireland and South Korea are lower (depending on the year, Ireland cut taxes significantly recently). But they’re together with the US in the bottom band.
So the rest of your argument doesn't work, since it was based on your claim that we have the lowest taxes.
Our government doesn't respond to citizens, only corporations.
6 months ago: https://news.ycombinator.com/item?id=20119916
8 months ago: https://news.ycombinator.com/item?id=19613725
9 months ago: https://news.ycombinator.com/item?id=19392673
2018: https://news.ycombinator.com/item?id=17751383
2017: https://news.ycombinator.com/item?id=13853150
2015: https://news.ycombinator.com/item?id=9381437
https://news.ycombinator.com/item?id=9380232
2014: https://news.ycombinator.com/item?id=7595440
2013: https://news.ycombinator.com/item?id=5443203
I'm sure there are others...
The current submission passes the significant new information test, so we won't count it as a dupe. https://hn.algolia.com/?dateRange=all&page=0&prefix=false&qu...
Essentially: * IRS wanted to open tax software business to private companies. * Intuit has a variety of products with similar names and each has a free offering for a specific set of tax payers (e.g. income below some number). IRS + US Gov bought the story. * Intuit caught doing a variety of false advertising, misleading documentation, adversarial website editing, etc. They make it impossibly hard to find which is the free version of whatever you need.
So this is a big first step away from the draconian Intuit monopoly. It would be interesting to know what precipitated this change.
[0] https://np.reddit.com/r/technology/comments/bgj6oz/turbotax_...
This wasn't just a shady operation -- Turbotax openly lied to customers about its free file program, it deliberately suppressed the program from search results, it lied to veterans. It was 100% acting in bad faith during negotiations with the IRS.
Sometimes topics like this end up becoming kind of ideological or partisan; but in this case I feel like Intuit is just very objectively in the wrong, and that the IRS agreement for the free file program very objectively just was not working. I myself contacted Turbotax about their free edition and got personally lied to about the differences between the programs.[0]
> In this call, I was told that the form availability between the Free File and Free edition were the same, and I wouldn't be eligible for either. To check this, I created a second account and added the same forms to the Free File program. I was never charged or told that I was ineligible. All of the forms were added successfully.
I guess what I meant by partisanship is, we could have a higher-level argument about whether or not the IRS should in theory have its own filing program, and that's the way that Turbotax wants to phrase this -- that it's just that Democrats want a government program. But Turbotax was blatantly involved in false advertising, lying to customers, rigging search results to get around their obligations.
Intuit is putting out videos that say, "Probublica just has an agenda", they want to make it a partisan issue. But it's like a gun company selling guns that randomly explode in your hands, and trying to say that it's an attack on the 2nd Amendment when they're forced to issue a safety recall.
When I describe the issue to people, I try not to let them have a partisan debate about taxes in general. When that debate starts to come up, I push back on the simpler issue, which is just that false advertising shouldn't be OK.
But this can be solved by autofiling taxes, and then sending a yearly report: you earned X, paid Y taxes, out of those, Z goes to this, Q to that, W to that other thing, you've used these government services this year, that cost that much money, etc.
This is problematic here (small EU country). People have no idea how much taxes they pay, and believe free (healthcare, schooling,...) is actually free, and that government can pay for anything. If average Joe (Janez here) would know how much taxes he pays for (eg.) health, and what kind of a shitty service he gets for that, he'd be protesting already,... but since it's 'free', it's ok, just so he doesn't have to pay for it (out of pocket directly).
Now let's have the IRS start building out their free e-file program and IDEALLY put some pressure or at least summarize what parts of the tax code are the most complex so they can be simplified.
A lot of the tax code complexity comes from congress messing with the logic of taxing folks on their income.
And yes, simplifying the tax code would get rid of loopholes like deduction that can exceed the cost of the item placed into service (!) which make zero sense AND create tax vs gaap difference that have to be tracked over long periods of time.
Another one to get rid of - phantom LIFO inventory unless the inventory is real.
- 50ish% back after deducting the given unappreciated basis,
- Selling the short-term gains would cost you half the profit, so the charitable deduction gets you roughly 100% of the after-tax profit from the trade back in your pocket.
(Plus the upside of sending money to charity.)
The math doesn't work out for long-term gains though, and obviously works best when the asset has appreciated strongly. Not sure about the legal treatment of partially-donated options spreads or other complex hedging tricks to manufacture these gains and offset them against a loss.
Not tax advice etc, all just guesswork.
that said, donating stock that has a long-term capital gain is still extremely tax advantageous.
This creates a complexity nightmare - as you end up with basis changes for s corp pass-thru's etc that are not tied to anything "real" - ie, no additional contribution of assets or payment of tax on accumulated gains. This all makes things very complicated from recordkeeping, reconciliation and auditing perspectives.
Trump's tax plan did simplify things for the majority of W-2 workers on salary that used to itemize because they owned a mortgage. Now, most of them can file using the standard deduction.
I don't have a mortgage but have sometimes itemized depending on moving and work expenses, various deductions, etc. Those are now gone, and my taxes are easier as I don't even bother keeping receipts and saving charitable gifts throughout the year. I come out a head, too, since the standard deduction was almost doubled.
In other words: the government and the IRS should have checks and balances to income taxation, not (literal) carte blanche.
[1]https://www.jobs.irs.gov/careers?field_usajobs_category_ref_...
1 - https://www.propublica.org/article/irs-sorry-but-its-just-ea... 2 - https://www.nytimes.com/1997/03/09/us/scientology-s-puzzling...
The State: Pay me taxes or I'll put you in a cage!
Citizen: OK, how much do you need?
The State: You tell me, but if you're wrong you'll regret it!
I don't want the government to make a free solution to help me file taxes. I want the government to make a solution that prevents me from having to file taxes in the first place!
Edit: a lot of it is pre-filled (payroll, bank interest, investment distributions in my case), you just need to check against your own records.
In fact it's the same interest they pay you if you were due refund and they were slow giving it back.
My main complaint is that it's a super, super slow process. They'll follow up years later, and each back and forth takes like three months.
Then California is the same way too it sounds even going after former residents as they went after the inventor of the microprocessor who moved to Nevada, and even broke Nevada law while doing so since they sent state officials across state lines to stalk him and dig through his trash. He sued California in Nevada and was granted millions of dollars, but due to a loophole, California didn't even have to pay as much as the judge in Nevada ordered. California says living in an apartment isn't a permanent home, you must get a mortgage and buy a house to no longer be a California resident... Well, of course, that isn't the actual law, so the state of California abused their power.
I wonder how California would view someone getting into YC, doing the program for the 3 months and then going back to where they were originally living or moving to a totally different state after such as Austin, TX since they had no intent of living in California? I wish YC would expand to Austin. San Francisco looks nice to visit, but due to it being expensive, and politics it's a turn off for some people. However it seems like Austin is starting to have some of the same problems with cost of living rising since it's growing, Apple is expanding there to be the largest employer in Austin.
Note the term "organic" which suggests the page "naturally" ranks in the first few hits. The agreement doesn't seem to prevent Intuit and others from both buying ads to populate the top of search results and SEO'ing the crap out of it to make their stuff rank at the top "organically."
I see this as a good example of how policy makers write policy with good intentions but without a fundamental understanding of how gamed Internet search is in order to make it profitable.
I agree with your argument in the general case, but in this case that seems like what they would want: not to exclude the possibility of advertising or SEO for the other products, but to rule out doing reverse SEO (or just robots.txt to exclude it from search engines) on the Free File pages.
https://priceonomics.com/the-stanford-professor-who-fought-t...
1st of April every year we get our pre-filled tax form (digitally), which we have to look over. If we find it to be alright, we don't have to do anything (deadline the 30th of April) and the taxes have been filed. All financial institutions sends data to our tax office, so it's all there.
What kind of insanity leads to this? The government is prohibited from creating software that helps its citizens?
There's a lot wrong with Brazil but here I just download the government-provided software (that runs on Windows/Linux/Mac) and fill my taxes in 10-15 minutes. Every year they release a new version that is easier to use than the previous one.
Related: TurboTax Deliberately Hid Its Free File Page From Search Engines
https://www.propublica.org/article/turbotax-deliberately-hid...
HN discussion: https://news.ycombinator.com/item?id=19758126
"Lobbying" and "campaign contributions", aka paying congresspeople aka straight up corruption but you can't use the C word in US politics.
H&R Block and Intuit have been greasing palms for years to keep the agreement in place and encode it in law: https://www.propublica.org/article/congress-is-about-to-ban-...
> Those efforts have been fueled by hefty lobbying spending and campaign contributions by the industry. Intuit and H&R Block last year poured a combined $6.6 million into lobbying related to the IRS filing deal and other issues. Neal, who became Ways and Means chair this year after Democrats took control of the House, received $16,000 in contributions from Intuit and H&R Block in the last two election cycles.
So it's more about having money to get reelected than a simple personal bribe.
Sure, it's paying people off with more steps, and keeping them when they are so they keep providing the services you paid them for.
> Money paid to a PAC is very much separated from the politician. They can't so much as coordinate with the PAC.
They can't so much as explicitly and officially coordinate with PACs. I'm sure a second of thinking will reveal the flaw.
> So it's more about having money to get reelected than a simple personal bribe.
You're the one talking about personal bribes. And I still fail to see how the fig leaf of "campaign donations" is anything more than a bribe with more steps. “Oh they’re not getting money they’re getting the means to make money”.
I think that's a distinction without much of a difference.
There were whole weeks of "The Colbert Report" where Colbert and Jon Stewart legally set up a super PAC for colbert to run for "president of South Carolina" where they exploited every bit of the super PAC legislation just to show how easy it is and what kind of legal things people can do with the money. The "you cannot coordinate" part was hilariously easy to get around.
We have systems in place to push back against the slow but incessant march (back) to plutocracy, but we don't always use them in a timely fashion. After almost 250 years there's been some... entropy.
Except it's not entropy, it's order (which helps with the sales pitch). Just not the kind of order everybody needs.
Just don't outsource it. I'm sure USDS could have it ready in less than a year.
But did they also send any interest? Notice if you owe them, you also owe interest, unless you negotiate. If they owe you, you don't usually get the interest sent do you.
"I can take out $2k to fix the flooded basement and it'll cost me $200 in penalties? OK."
Source: I've filed a 1040X twice, both times in my favor (due to my own mistake I noticed on my own later). The IRS issued me a 1099-INT the next year for the interest they paid me. The rate was substantially above market!
Experiences like that aren't unique and are enough to put lots of people off trusting the government to be on their side for resolving disputes like this. Most people don't separate out their state or local authorities from the feds. It's all just "government" to them. And even the IRS can make life extremely stressful by auditing people who aren't all THAT rich to begin with (because people with real money have lawyers who make it expensive to go after them).
I, personally, think the solution is to make the federal (and state) bureaucracy more service oriented rather than treating everything like a punitive law enforcement role. But apparently not many people agree.
Sure, interest after 6 years can accumulate into a nice penalty sum on top of what is owed. If IRS ends up owing you, and they discover it 6 years later, would they send you the refund with an interest as well? I am guessing they won't.
They also sent me some form the year after that so I could declare the couple dollars interest I got from the IRS as income.
This is probably just a practical matter, because accounting for interest during the tax year would be complex/impossible because you would need to know when the various amounts of withholding exceeded the amount owed. I'm not even sure there is a single consistent way of doing this.
I am REALLY trying to do this on my own without an accountant. I think I got it right with 2019, but I will find in a few week how far off I am when I try to file.
I'd say my interaction feels like the IRS is just painting by numbers - they are just running the numbers and checking if you filed correctly or not. If you did not and the number is significant, they send you a letter.
you can overpay the IRS by the amount you would pay if the exceptions you are pretty sure apply actually didn't.
They will return the extra to you, and you lose the interest that money could have earned but gain the knowledge for next year of whether you can or can't do what you wanted to try. Depending on your specifics might be cheaper than a tax adviser.
Disclaimer: YMMV, I'm not a tax advisor, I pulled this out of my * * *, etc.
It was not a pleasant experience. So they knew about this account, all the years before and then all the years after. We got a letter that said I under-reported my income for some year 5 years prior. I mentions the account and the amount. Explains that since I didn't report that account, it's treated like normal income for that year I owe them $80k plus penalties.... I forget the exact wording but prison time was mentioned for tax evasion in the initial letter. Hired a lawyer, hired an account, refiled that year and then the subsequent years since the account found some more deductions. Then it took about 2 years to get it closed out. We'd write a letter, 3 weeks later we'd get a letter back the said they'd respond to our letter within 90 days. After like 9 months the accepted our new tax submission but insisted we pay the penalties. It took another 15 months for those to get waived. It is infuriating fighting over penalties that no longer apply.
I've underpaid precisely once, when I didn't know about qurterly reporting, and the so-called "penalty" was nothing unfair -- just the interest the money earned in my account instead of the IRS's.
The IRS already knows the numbers on W-2 forms because they get the same data from employers. Financial institutions also send them 1099s and other forms.
So the IRS already knows all the numbers. There's little point in making people manually re-enter the data.
The IRS should automatically fill in everything it knows about, and then let people add deductions and unreported income if they need to. It would make filing taxes almost a no-op for a lot of people.
The one time I underpayed I promptly received official letters from the federal and state governments giving me time to pay them with a very minor penalty (it was well under 1% due to the short time frame). It was simple and easy.
Ironically the Trump tax cuts made this even easier as the standard deduction was doubled making it much less attractive to itemize.
The ask is for the government to declare what it knows about a resident's taxes upfront, and then letting the tax-payer decide how much they want to invest in contesting the government's calculation. The conjecture is that for most people the need for contesting the government's math will not be needed. Currently, the part you call "responsibility" results in tax payers paying a third party millions of dollars every year. The expectation is that this waste of money can be largely avoided. How is that whining?
For example. I'm considering installing Solar Panels on my house. The entirety of the official IRS guidance (in the manuals) is this:
"Qualified solar electric property costs are costs for property that uses solar energy to generate electricity for use in your home located in the United States. No costs relating to a solar panel or other property installed as a roof (or portion thereof) will fail to qualify solely because the property constitutes a structural component of the structure on which it is installed. The home doesn't have to be your main home."
So of course the first question you ask is "Ok, I have to fix my roof to install solar, and that appears to be covered. But does it only cover the part of the roof covered by the panels or does it cover the entire roof job? Does it cover the costs of only a basic roof job or a premium job? If it only covers the portion under the panels what is the procedure to prorate the costs?"
It wasn't clear to me so I called the IRS help line, figuring that this is their job. They are the ones that ultimately decide one way or the other if my deduction is valid or felony tax fraud. The official guidance from the help line is "We do not offer guidance on that issue." The money we are talking about isn't trivial either. It can amount to thousands of dollars, guessing wrong could theoretically mean actual jail time or massive fines if someone at the IRS decides to make an example of you.
Like WTF IRS. I'm trying to do right here and you're literally making it impossible.
I'm not a tax attorney, or an attorney at all, and so this isn't legal advice, but IME if you make an honest mistake, the IRS will usually send you a letter informing you of this and you'll get a chance to make it right.
E.g. For §25D
https://www.irs.gov/pub/irs-wd/201809003.pdf
https://www.irs.gov/pub/irs-wd/1130003.pdf
You also apparently did not review
https://www.irs.gov/pub/irs-drop/n-13-70.pdf
(Which even has a contact phone number for the author; call it! Worse that can happen is they point you somewhere else.)
If you google "IRC §25D" you'll find a wide variety of resources. In reality, what you'd likely do is a read a bit, and try to come to reasonable conclusion. If the tax amount at issue is substantial, try to find someone with expertise in the topic. Also try to take ideas to their logical conclusion. If 25% of your roof is solar panels, do you think the credit should apply to the cost of an entire new roof as well? It's a credit to encourage energy efficiency, not regular upkeep.
There are also specialized search engines. E.g. search for 25D at http://www.legalbitstream.com/irs_materials.asp?pl=i1
But then the documents they send are poorly documented, and very difficult to extract the required information from. The documents you want might also arrive after the annual filing deadline, or never.
And what they calculate for what you owe never includes optional means of reducing tax owed. So in some cases, the number you calculate for yourself can be both lower than theirs and yet still correct.
If you are in a business that includes a lot of cash transactions, or have to report additional income from sources that do not automatically report on a 1099 or w2, a FOIA request should be able to tell you what the IRS already knows about, and can prove that you earned. That will allow you to calculate how many patriotic brownie points you will earn for reporting those sources that aren't already noted in your file. As with many things related to government administration, be warned that if you choose to play stupid games, you might win stupid prizes.
the raise of the standard deduction; doubling; in effect made deductions simpler for many and transferred wealth back to those earning less
It is largely due to Republicans that we don't have such a program. Voting matters. https://priceonomics.com/the-stanford-professor-who-fought-t...
And Intuit did not lobby Republicans, it lobbied Grover Norquist.
>> That morning, Frommer polled his colleagues in the Assembly and found they were a vote short. No Republicans would vote for the bill, and some Democrats would vote ‘no’ too.
>> Once again, Intuit had blocked ReadyReturn.
It's definitely an Intuit thing, but being bought by Intuit seems to be a majority Republican thing.
That's not what the article says though. It says Intuit bought Grover Norquist, who then caused Republicans to vote against it (but not because of money they got).
And it says: "In 2007, Eric Cantor (a Republican leader) and Zoe Lofgren (a Democrat from Silicon Valley) had introduced a bill to ban return-free filing. Both received contributions from Inuit."
Bush campaigned on (among other things) rewriting and simplifying the tax code. Bush's executive order pushing that forward was signed January 2005: https://en.wikisource.org/wiki/Executive_Order_13369
Maybe Intuit's donations and lobbying were not caused by that, but doesn't it seem really strange that a popular initiative suddenly changed direction after a big pile of money was given to Republicans?
Politicians shouldn't be willing to change their stance for money. It's as much Intuit's fault as it is the people that took the money.
Intuit had just given $1 million to a Republican running to unseat John Chiang, an FTB member who supported ReadyReturn. The chair of the FTB, Steve Westly, says the support drummed up by Bankman gave them more political space to vote for a program they felt strongly about.
Let's not ignore the fact that the Republican platform fundamentally lines up closer to Intuit's business interests.
When Ronald Reagan was governor of California, he opposed a reform that would make paying taxes more seamless on the grounds that “paying taxes should hurt.”
...
That morning, Frommer polled his colleagues in the Assembly and found they were a vote short. No Republicans would vote for the bill, and some Democrats would vote ‘no’ too.
And that’s a lie:
https://www.tedcruz.org/postcard/
Paul Ryan also proposed something similar. However, Democrats opposed it. Basically if it’s simpler and cheaper taxes, Democrats cry foul. Auto filled forms with the current tax system is just lipstick on a pig.
Gerrymandering and voter purging matters
I think gerrymandering is an issue, but it's only a fraction of the reason why representation is not particularly proportional.
> I do not believe that the solution to our problem is simply to elect the right people. The important thing is to establish a political climate of opinion which will make it politically profitable for the wrong people to do the right thing. Unless it is politically profitable for the wrong people to do the right thing, the right people will not do the right thing either, or it they try, they will shortly be out of office.
> We do not influence the course of events by persuading people that we are right when we make what they regard as radical proposals. Rather, we exert influence by keeping options available when something has to be done at a time of crisis.
This is the /very/ important distinction. Our entire country was gerrymandered when they gave every state 2 votes in the senate. It's truly crazy how few Americans can sway the makeup of the senate/house/EC.
Edit: removed "(and 3 base in the house)" because that's not correct, I was mixing it up with the EC in my head.
That's not gerrymandering. That's the result of a federal system of government where every state is represented equally in the senate, and on the basis of population in the house.
It's fine if you don't like it, but it's not gerrymandering. Gerrymandering is manipulation of district boundaries. Senate representation of entire states is something else.
Except I don't get to vote on single issues like this. The US is a republic and I get to vote for leaders who supposedly represent the voting population to which I belong.
Problem is, there is never a viable representative who even somewhat closely matches my views on all issues - especially since the parties have so much influence in elections.
So it's not very helpful to just imply that I should simply vote for someone else.
Voter education is important for issues like this. If an idea becomes popular among a party's voters, the party will start to support that idea, which in turn influences their candidates.
But how else would you charge millions for half broken and otherwise still shitty software and UIs? Sorry I'm super bitter because all the government sites are absolutely garbage and so many links for more information, explanations, other forms, etc, don't even work and makes dealing with anything related to the government the most frustrating experience.
I'm happy to pay my taxes. I'm very much NOT happy to collect all of my information and carry it to my accountant. And then be afraid that I forgot something.
In fact, if its the accountant's lobbying against this, I'd be happy to pay $400 (what I pay for tax prep) into an accountant retirement fund or something, just don't make me collect all the information that the IRS already has.
The federal government provides a lot of valuable services that private companies can’t or won’t do, but building something like that in a year isn’t one of them.
One caveat is that you can't attach forms you've been sent from your bank or employer or whatever; you have to transcribe your W-2, any 1099s, 8949s, etc. This can be tedious. I don't know if e.g. TurboTax somehow makes this better.
I am sure that there are people for whom free file fillable forms is not enough, but IMO these people should probably be working with a CPA.
[0]: https://www.irs.gov/filing/free-file-do-your-federal-taxes-f...
Billions of dollars in lost man power? Billions of dollars in wealth transfers from middle and lower class people? Probably more like Trillions.
Norquist didn't succeed in drowning the government in the bathtub. He DID successfully manage to keep the entire US citizenry drowning in billions of hours of wasted effort and billions of dollars of unnecessary expenditures. Good work, Norquist!
I don't love Grover Norquist, but I thought it was interesting/open-minded of him to see Burning Man for himself. And, I align with the idea of reducing taxes. So, this makes me feel like he was not just a useful idiot if he actually did it for this reason.
But, still, what a cost to bear. And, does the long term goal of reducing taxation by causing people to hate the IRS get him any closer to actually reducing taxes and/or getting rid of the IRS? Obviously, that did not happen.
From that page: "In 1985, he went to a conference in South Africa sponsored by South African businesses called the "Youth for Freedom Conference", which sought to bring American and South African conservatives together to end the anti-apartheid movement."
Why would anyone work to end the anti-apartheid movement? Did Norquist think that divestment and free-trade would be more effective in ending apartheid?
https://www.thenation.com/article/meet-conservatives-who-cam...
Didn't know that Jeff Flake, the sole anti-Trump Republican US senator, was also active in that movement. I have often felt down on my luck about my employment opportunities, but never have I considered working as a lobbyist for a South African mining company during Apartheid. The book "My Traitor's Heart" has some riveting stories about the horrors of being a mine worker in South Africa before apartheid ended.
How can you get the MAXIMUM tax revenue from your citizens?
The easiest way is to do it slowly, and if possible hide it.
#1 1913 implement an income tax
#2 1942 implement payroll withholding (easier to take what you never saw)
#3 make it convenient to just say "ok" to complicated taxes (free filing)
I'm surprised they didn't give you a "tax break" for letting the government do your taxes for you.
I think we're all motivated by both survival and doing good, and I see an overall trend towards more doing good, as survival gets easier. Is this a case of that? Who drove it? What internal processes allowed public service to overcome corrupt lobbying pressure?
But ... not the remaining 10%. And there will be no errors if you fail to do them (other than your return being incorrect).
I don't know if it is better or worse to offer a deliberately crippled system.
So how is there still a "deal" with tax software companies?
Isn't the whole deal that the IRS would not make such software?
I really hope the IRS creates it's own site, they would need to advertise it heavily though, way way too many people think eFile = TurboTax. There's already vastly better options out there but very few people use them or know about them.
Edit: I think the real killer feature would be to pre-populate the "IRS e-file" with the information the IRS already knows about you. That would get people paying attention.
TaxHawk ( https://www.taxhawk.com ) is what I've been using for like almost a decade. Federal filing is free, state filing is only is $15. You're free to use the free federal option without having to pay for the state option. No tiers, no dark patterns, no upsells. The UI is fantastic (and the UI is the entire point of using software, otherwise I'd just fill out my 1040 by hand like I did for many years). You can pull up the 1040 for any of your previous returns.
I've mentioned it on HN before and one reply said they used it to file because of my recommendation and it was both better than TurboTax and saved them like $100.
His story is inspiring. I’m a capitalist at heart. But I’m not a monopolist or a crony—and hope not to become one.
The best among us aren’t perfect. We should take this as a cautionary tale.
Are there so few customers willing to pay a truthful, higher sticker price that such a business cannot be sustained?
I haven't read their privacy policy. Perhaps a profile of me was sold to dozens of companies - but I think they fit your criteria pretty well.
[1] https://www.npr.org/sections/money/2019/04/03/709656642/epis...
Is this the equivalent of the issue in the USA or is it more expensive or something? I get that free filing is kind of obvious as a right, but the online service really does give me $15 of value so I've never thought to be upset by it.
I see no problems with private companies charging a Fee to provide a better service.
https://www.creditkarma.com/tax
But -- the hard bits are state-specific support, and the supplementals K-1, 6250, et al. Anyone have first-hand experience with CreditKarma tax filing?
There's also TaxAct -- anyone tried it?
I now use https://www.freetaxusa.com - a little less hand holding than TurboTax, but if you know what you're doing it handles almost every situation and is, as advertised, free.
I've used it for the last 3 years in California. Quite simple, free, supports backdoor Roths. Tax returns were quickly accepted and paid out into my bank account.
Dunno about more complex use-cases (I don't own a home or a business, and I work in one state year-round), but definitely worth a look.
Overall i think CreditKarma is fine if you don't mind that you're sharing data with a company that would love to middleman you into signing up for a new credit card or something. I find their emails pretty easy to ignore and it's felt like a fair trade thus far, though I may look into the IRS offerings this spring and see what else is available.
edit: in California.
Is this a trick? Sleight of hand to distract, to funnel the non wealthy towards a presentation of the tax code that obscures the existence of incantations to the elder gods known only to operating thetan level VIII accountants?
Is this a bellwether of positive change, or a an eddy current in the river Styx?
Is this just normal institutional behavior? Is Ragnarök 2020 just a delusional end-of-days narrative I've bought into? I can't believe we've made it this far - Y2k didn't kick off, I was sure at least Agile would be dead by now, am I 'dude you\'re overthinking this'?
Am I in a distributed doomsday cult?
oh, also - happy new year.
Happy new year.
Perhaps what the commenter meant was "we should fill out forms detailing income + expenses (where applicable) and the government should compute our taxes for us". I'm mostly good with that idea.
Edit: looks like this line didn't go over so well. To avoid distractions, I'm going to move these links to another post and mark this subthread off topic.
Links moved to https://news.ycombinator.com/item?id=21924055.
"Snarky trivialization of activism on this issue" seems like the very kind of thing you'd normally discourage.
Sometimes I add little twists into these things to make them less bone-crushingly tedious. Occasionally they cross a line. That's how I find out where the line is.
Since this whole subject includes a lot of doublethink (such as the fact that according to a video someone posted in this thread, the Free File Alliance is a front group to hide free filing), I think it would be better not to include phrasing that suggests doublethink. I could be misreading your comment, though.
It seems that you might not have been aware of this reference? (But the other people responding to your comment are picking up on it.)
[1]
>To hide such contradictions, history is rewritten to explain that the (new) alliance always was so; the populaces are accustomed to doublethink and accept it.
<dramatic music plays>
As noted in a sibling comment, the IRS could pre-fill forms that would be correct for the vast majority of tax payers (who take the standard deduction/don't itemize, have a single job, and no other edge cases). These people should not be paying TurboTax either way - the forms they need to submit are relatively straight-forward. People who do need a CPA would have to hire one regardless. TurboTax is literally just ripping off average tax payers.
> Gov: you owe us money. It's called taxes
> Ctzn: oh ok, how much do I owe you?
> Gov: you have to figure it out
> Ctzn: oh well, then I owe you 0
> Gov: no, no, we know how much you owe, you have to figure it out, and by the way if you get it wrong you go to jail
The effort to reduce the complexity of the 1040 into 6 new schedules was a great way to factor out those with complicated situations such that the majority of tax payers are oblivious to those nuances. The crux of the matter is that legislators passed into law all these onerous mass of rules to turn various levers to entice and discourage certain things and bite those with progressive tax rates. It is precisely the existence of these rules as to why the government doesn't know what tax valley you land in that huge parameter space. It will not presume to know your specific circumstances but assume that you being aware of your own money and circumstances are in the best position to know these things. At the least one thing I learned is that with tax laws if you have no idea what a thing is it probably in not applicable to you.
Needless to say all of this would be much more simple if we just pay a flat tax on all income for all people. Nothing simpler than that.
That would be a highly regressive tax system that dramatically transfers even more wealth to the already wealthy. But sure, it's definitely simpler. That doesn't make it better.
> That's about as equal and fair as you can get
Equal in terms of % of income paid: yes, fair: no way. Your statement makes the assumption that the opportunities to gain higher income are equally and fairly distributed, which they are manifestly not.
Looking at the wikipedia article they claim that flat tax lies between a regressive and progressive tax.
> The opposite of a regressive tax is a progressive tax, in which the average tax rate increases as the amount subject to taxation rises. In between is a flat or proportional tax, where the tax rate is fixed as the amount subject to taxation increases. https://en.wikipedia.org/wiki/Regressive_tax
Where in my statement does the assumption of equal income mobility pop up?
Another hit mentions a proportional tax as a middle ground between regressive and progressive gradients. The central point is how things are treated relative to income. https://www.investopedia.com/ask/answers/042415/what-are-dif...
> [A flat tax is] about as equal and fair as you can get
I disagree about the fair part, but we likely have different ideas about what fair means in this context. For me, equal opportunity to income mobility is part of what fair means.
If I go from spending $200/month on groceries and then I get an enormous 300% raise at work, I'm not going to start spending $800/month on groceries, maybe $300. The rest goes into the discretionary part of my budget. So, to someone making $40,000/year, paying 20% of that in rent, 10% for food, 20% for healthcare, and 15% for other stuff, adding a 15% tax is a decent chunk of the rest of their budget. But, for someone making $400,000/year, paying 15% for rent, 2% for food, 10% for healthcare, and 15% for everything else, then 15% of their income towards taxes is comparatively much less of their total budget!
This is true, even though everyone is paying a proportional amount of their income. Another way of thinking about this is as follows: if there is a homeless woman on the side of the street who makes $30 one day begging for change, should she be taxed at 15% and have to give the government $4.50 because it's "fair", or, should she be receiving more value in benefits than the average citizen because there is a floor on how much you can spend on food and survive?
Thus, even a flat tax can in practice be regressive, because essential spending does not scale with income.
An addendum: While it is not relevant to this argument, I also agree with the other commenters that whether a tax system is flat or has marginal brackets is not the main source of complexity, and is relatively super simple. The main complexity comes from determining which sources count as income. Presumably, birthday presents don't, but whoops, now there's an exception. And this is suddenly how tax laws get super complicated.
Premises
X = income
c > 0 (income difference)
p = tax rate
e = some expense
==> X+c > X (income inequality)
==> (1-p)(X+c) > (1-p)X (income after taxes)
==> 1/[(1-p)(X+c)] < 1/[(1-p)X]
==> e/[(1-p)(X+c)] < e/[(1-p)X] (expense relative to disposable income)
Once we start trying to equalize along these other dimensions of marginal utility or equality of some other thing we're no longer focused on funding government but enacting some equality/justice endeavor. Those I imagine probably also suffer from holding no simple formula to calculate their equalities against. Let such endeavors be handled by some other government agency dedicated to those causes, why drag the tax system into the mix and complicate things is what baffles me.
Creating equal opportunity and administration of justice are functions of government. You seem to agree:
> Let such endeavors be handled by some other government agency dedicated to those causes,
How would you fund such government agencies except via tax revenue?
> why drag the tax system into the mix and complicate things is what baffles me.
The IRS doesn't administer, i.e. Social Security and Medicare. It is just responsible for collecting the tax needed to fund them. Otherwise each government agency would need it's own revenue collection arm, which makes little sense from an efficiency perspective.
A flat tax set at the very low levels its proponents advocate would effectively defund government programs like Medicare and Social Security, which is often the goal behind such proposals.
Note by the way that social Security tax is today an example of a regressive tax which caps out at around $132,000 of income.
Yes. And as part of that you have to decide how much each person is to contribute.
> We should have a simple tax formula strictly dedicated to funding the government where everyone has skin in the game
Yes.
> ..and contributes equally along some metric.
Yes, according to their means. The metric is contribution proportional to your ability to contribute and that folds in implicitly the idea that your "means" are non-linear with respect to marginal utility. Noblesse oblige. [1]
> The flat tax seems a dead simple reasonable metric and is unquestionably equal when focused on contributions.
No, it is not. Because 10% of 10K/yr income of someone working at burger king is an undue hardship whereas 10% of 1M/yr income of someone running a big company is no burden at all. 1K to someone making 10K may be the difference between sleeping in a bed and sleeping in the street, but 100K to someone making 1M, frankly, they wouldn't even notice it.
> Once we start trying to equalize along these other dimensions of marginal utility or equality of some other thing we're no longer focused on funding government but enacting some equality/justice endeavor.
No, we know how much we need to fund the government based on cost of policies enacted. That's not the job of the IRS, that's the job of the budget committee in congress. What the IRS is doing is figuring out how to apportion that burden among the population.
> Those I imagine probably also suffer from holding no simple formula to calculate their equalities against. Let such endeavors be handled by some other government agency dedicated to those causes, why drag the tax system into the mix and complicate things is what baffles me.
Again, the goal is to figure out how to apportion the burden, and that's done by indexing to marginal utility, bringing us back to where we began.
To be clear this isn't coming from someone looking to take from others, I'm in the top marginal income tax bracket, and I think it should be much higher than it is. IMO it should go back up to 70% as it was for much of the 1900s. [2]
[1] https://en.wikipedia.org/wiki/Noblesse_oblige
[2] https://www.washingtonpost.com/us-policy/2019/02/27/top-tax-...
For these specific two examples, the IRS need only introduce monthly reporting requirements for all tax-affecting investments, at which point they once again have sufficient data to do your taxes for you. They already have your SSN, so there’s no excuse not to have integrated reporting.
What tax-affecting data does the IRS need to be collecting that they are not, in order to prepare viable estimates taxes for 90% of citizens?
(Or, if you’re being sarcastic, please indicate so more clearly.)
So the ideal solution would be that the IRS sends you a letter in January that basically says "You made $XX,XXX this year, you are in YYY tax bracket, and thus you owe $ZZ,ZZZ money".
So if they sent that in January, then Americans could have until April 15th to either send a check for the amount owed or to send back an approval for the refund.
For most people, the amount the IRS sends us will be accurate. But if you do want to submit additional deductions then there could be a deduction form you fill out that takes the IRS' total and submits deductions against it.
Again, most Americans would not need to do anything. Self-employed individuals or individuals with many investments or donations might need submit additional information. But this would be the minority. Most people honestly could just agree with the IRS' determined amount due.
They also keep a running tab on your tax account, if you underpay or overpay you have an interest-yielding balance that you can either correct or let sit until next year if the amount is so little it doesn't matter. And it's symmetric with respect to a surplus or deficit, unlike the IRS "if we owe you, then thanks for the zero-interest loan you gave us, but if you owe us then there will be interest and possibly penalties" scheme.
https://www.businessinsider.com/the-republican-tax-reform-po...
Just doubling the standard deduction is fine. Capping SLPT was a kick in the nards to liberals on the coasts. It's not just "upper middle class" folks who got hosed, its actually people on the bubble, for whom their SF property tax (1.188%) already eats their entire deduction, and now they're double-taxed on their state taxes. 100K may be upper middle class in Iowa but it won't even get you a studio apartment in SF. That's who gets hosed.
And anyone with way too much money got more money. The net of it was dumb.
If those taxes can be deducted, the nation is subsidizing the more wasteful states. We create a situation where the winning move is to jack up state and local taxes. This diverts more money to the state. The cost of wasteful spending gets spread across the nation, while the benefits stay with those who are wasteful. This encourages a race to see who can be most wasteful, with the federal government being forced to have higher tax rates to make up for funds lost to tax deductions.
Your argument just makes it more efficient for the federal government to be wasteful than state governments which do way way less. It’s useless. The federal government has no business keeping states “lean” that’s up to the voters of said states. There’s nothing in the constitution that makes it the federal governments responsibility unless I missed an amendment.
Further these high tax states also pay for literally all the other states. California is massive net givers of transfer payments and the flyover states being given a break from this are net takers of transfer payments. It’s just biting the hand that feeds. Of course it’s not politically expeditious to say that. [1]
This was done for votes, nothing else.
[1] https://www.politifact.com/california/article/2017/feb/14/do...
There is no double taxation. You owe tax first to the federal government. The state could let you deduct federal taxes from your state taxes, or not. The federal government has no duty to give you a discount for your choice to live in a place that would divert lots of your income to local purposes.
As a thought experiment, consider the ultimate extreme. The local government takes 100% in taxes, then provides you with everything (house, food, clothes, etc.) as government services. Your region thus pays ZERO federal income tax despite having wealth to enjoy (you are fed, etc.) and receiving federal funds for various things.
What you have is a partial version of that extreme. Your state isn't being 100% unfair to the other states. It is just modestly unfair. The federal government shouldn't enable that kind of unfairness.
BTW, politifact is not credible due to strong partisan bias. I also don't think that "transfer payments" are a proper accounting for differences.
California takes that tax revenue and reinvests it into the populace which is what generates the income the federal government relies on in the first place. Think of state tax revenue as COGS. The federal government has always been second behind the states and been severely limited in scope and responsibilities. You know what if a state had 100% tax, they could decide between themselves and the federal government how that would be used to service national obligations without involving me.
Further it is patently double taxation if I have to pay taxes to two entities based on the same unadjusted income. Fair or unfair (in your opinion or mine) it is what it is: double taxation.
Double taxation and beyond is the norm. You have sales tax, paid to a vendor that pays their own income tax, for goods that were imported with tariffs.
Unless you voted against the California politicians, you should enjoy paying your taxes. Those politicians are why we can't cut expensive government programs at both the state and federal level, and why we must tax heavily to compensate.
Nobody's evading anything. The federal, state and local governments together are your government. That's why you've always been able to deduct the local from your state and federal, and state from your federal. In fact I can't think of a country where that's not true, can you?
> Double taxation and beyond is the norm. You have sales tax, paid to a vendor that pays their own income tax, for goods that were imported with tariffs.
Not with income taxes. Historically not within the United States, and again, as you continue to refuse to address, not for taxes paid to foreign governments. The US has a huge network of no-double-taxation tax treaties with foreign governments because it's not fair to tax people on their taxes.
The IRS has a no-double-taxation treaty with Azerbaijan and yet it can't manage to sustain one with California? [1]
> Unless you voted against the California politicians, you should enjoy paying your taxes. Those politicians are why we can't cut expensive government programs at both the state and federal level, and why we must tax heavily to compensate.
California's top tier is 13.3%, the US federal is 37% + FICA. You can't tell me with a straight face that California's measly tax rate is the reason the US federal government has to charge 40% of both my income and my taxes.
I have no problem paying my fair share. I'm also a non-citizen so I can't vote.
[1] https://www.irs.gov/businesses/international-businesses/unit...
If I'm in Texas, my state income tax is $0. My federal tax rate will be higher without having state taxes to deduct. Part of this money goes to you, in California.
If you're in California, you get a reduced federal rate if you can deduct California taxes. The money from California taxes stays in California to benefit you. I do not benefit from your California taxes.
California would be getting money from you without paying federal taxes on it. The money then goes to you, via services provided by California. You're getting that money back in the form of superior services like better schools, homeless services, and roads. You're getting to spend that money in your state, free of federal taxes.
The deduction is thus a massive subsidy to states with high local taxes. It places a greater burden on states that are less wasteful, since nobody there gets to deduct state taxes. Such a deduction thus encourages wasteful local government.
As viewed from outside California, money owed to the federal government is staying in California to be spent for the benefit of people in California. That simply isn't fair.
If you are unhappy with the resulting high tax rate, you can leave the state or you can try to get the state to eliminate taxes.
> The situation with other countries is irrelevant to the matter of California income evading federal taxes.
No it’s very relevant. You’re trying to have it both ways. Either the state represents an arm of the government in which case taxing taxes makes no sense or it’s more akin to a country on its own where you could make the argument double taxation makes sense. But you argue it’s part of the government to the extent it should be contributing to your state but autonomous enough that it should be double taxed.
> As viewed from outside California, money owed to the federal government is staying in California to be spent for the benefit of people in California. That simply isn't fair.
If you want those services you can move to California. However that money isn’t wasted it’s used to support the people and economy of California which in turn would by itself be the 6th biggest economy in the world. That money is being invested in California and other states benefit from the tax revenue it generates.
> If you are unhappy with the resulting high tax rate, you can leave the state or you can try to get the state to eliminate taxes.
No haha I’m good, then I wouldn’t live in California where the state invests in its people (to an extent).
You can perform all the mental gymnastics you want to justify this but I think you’d feel differently if a democratic administration wanted to tax the tax revenue paid by oil companies or lord help us carbon. This was done plain and simple to own the libs on the coast. Anything else is backing out a justification and fighting for double taxation isn’t a good look.
California (the land and the people and the government and every other way you could view it) must pay. Internal use and abuse of funding shouldn't have anything to do with what is owed.
When you say that the change was "done plain and simple to own the libs on the coast", you presume that the previous situation was fair. It was not. Those "libs on the coast" were evading taxes, plain and simple.
That "6th biggest economy in the world" was doing so well partly because it avoided taxes. That was unjust enrichment at the expense of middle America.
I wonder if I could FOIA myself my tax return from the IRS for the coming year haha.
Flat tax is totally unrelated and a conversation worth having. It's regressive, disproportionately impacts those least well off (the poor) and doesn't make sense when you index the taxes paid to the marginal utility of money. For someone who makes 10K/yr, 10% is 1K and may be the difference between rent and homelessness. For someone who makes 1M/yr 10% is 100K leaving them 900K to futz with. 1K to a poor person ls worth way way more than 100K to a rich person. That's why we don't do it. That's why almost nobody does it.
Flat tax is "simple" in the way it's always easier to re-write something from scratch: what you're left with tends to be a bastardization followed by a long and expensive lesson in how it got that way in the first place.
(For an example of what it might look like, the Canada Revenue Agency offers this already: https://www.canada.ca/en/revenue-agency/services/e-services/...)
But not instantly. And not all of it in time for April 15th. Sometimes those details don't make it to the IRS for years.
We don't yet live in a world of instantaneous information transfer about every American citizen to the government.
Some people also see that as a good thing.
Tax filing and payment periods can be amended to accomodate that, even the fiscal year. It is not like these periods are unchangeable articles of basic law.
FYI we get all those figures ready by the start of March here in Turkey (Turkish yearly income tax deadline is March 20th). US can clearly figure a way out with three times as more people than Turkey.
And yet it has to get there by tax time so I’m having trouble believing it takes some tax forms literally years to make it to DC. Especially when you go to jail if they don’t.
> We don't yet live in a world of instantaneous information transfer about every American citizen to the government.
Buuuut it all has to get there by April 15th (actually February right) so I’m having trouble following this line of reasoning.
> Some people also see that as a good thing.
Why would information arriving quarterly (bi-weekly even) instead of annually be a bad thing when that information is legally bound to arrive at its destination anyways?
The only thing you're arguing is that the government shouldn't run their program a few months before you submit the documents, then send it to you for review, instead of afterwards and sending it to a tax judge. That's madness.
It sounds like you've never needed to file a revised tax form for a previous year. I have, and millions of other people do it each year.
Especially when you go to jail if they don’t.
The IRS doesn't show up on your doorstep on April 16th if you don't file. There's a process. A long, involved process. Even if you pay nothing, it takes months before they start forcibly taking money from you. If you file for an extension or two, it's even longer than that.
Why would information arriving quarterly (bi-weekly even) instead of annually be a bad thing when that information is legally bound to arrive at its destination anyways?
Because the vast majority of America's accountants are one or two person shops with neither the time nor the technology to make this happen. In spite of the rhetoric you see on the internet, the government (via the politicians) doesn't like to make things hard on small businesses unless it really has to.
The only thing you're arguing is that the government shouldn't run their program a few months before you submit the documents, then send it to you for review, instead of afterwards and sending it to a tax judge.
I argue nothing. I merely state facts.
Wouldn’t it be great if it was automatic and right the first time and you didn’t have to file amendments as a consequence because the source material made its way to the IRS AND they told you how much to pay? Or the frequency was dramatically reduced via automation?
> Because the vast majority of America's accountants are one or two person shops with neither the time nor the technology to make this happen.
(a) companies, employers, brokerages, etc all do this filing.
(b) we wouldn’t need nearly as many tax accountants, they’re just a drain on the economy. They’re employed to do the same thing as TurboTax: fill a hole intentionally left open in the IRS as a make work project. Like lamplighters, some jobs get obsoleted by technological and legal advancements.
Regular accountants sure. I’m talking about starting with individuals not business edge cases though.
(c) accountants already file quarterly, for me anyways...
Except that life doesn't work that way. Not everything in life is linear. Things have to be changed. Going back and making revisions is what humans do.
The resources and infrastructure to increase tax compliance and make it easier for everyone exists it's just that it has been grossly misallocated.
We have to remember too that the government itself is dealing in approximations and assumptions of its own. People make mistakes including those in government and corporations.
A flat tax is completely orthoganal to the complexity of the tax system(which is almost entirely what counts as income, and what type of income does it count as).
If tomorrow we merged all tax brackets into one, no one's taxes would get any simpler, just the poor would pay far more in taxes and the rich far less.
Eg, maybe the most optimal retirement plan changes depending on whether you are in the 2nd-to-lowest or highest tax bracket. That means advice for one person might be suboptimal for someone else solely because they are in a different tax bracket.
Factoring in indirect taxes like payroll, in Australia about half my marginal income is directed to government purposes (Australian tax system). Rationally I should be spending 2-3 days/year of thinking time reading up on changes in tax law and scheming on trying to optimise my tax burden if I believe I can find a way of reducing that by 1% somewhere. Having 5 different tax brackets is just asking for me to try and find some complicated scheme where I filter income to unemployed relatives (eg, the ol' put income earning assests in the wife's name). I don't want to be incentivised to be thinking about that sort of thing, I'd rather just know there are no options.
The more combinations there are, the more weird schemes people come up with. Having everyone pay a flat 30% and with some sort of minimum income scheme would reduce the number of alternatives there I have to think about and make it easier to be confident that my taxes are properly optimised.
That's the flip side to a flat tax, we save a ton on the opportunity costs paid for with time and the development of expertise in all this minutiae. We have entire industries and corporations devoted to taxation. At what point does the benefits gained by our tax complexity get outweighed by the regulatory costs and burdens associated with compliance to that complexity?
A quick check
> Tax preparation is BIG business – there were 300k people employed at 109k firms in 2012 - generating $9 billion in revenue in 2012. The industry grew over 2% from 2010-2015, and is expected to speed up the pace of growth. Revenues of $11 billion are forecast for 2018. https://www.franchisehelp.com/industry-reports/tax-preparati...
What else could we get with that sort of brain/man power?
This was about as far from being threatened with prison I've ever been... And believe me I've come pretty close to being arrested (during exercise of my 1st & 4th amendment rights on multiple occasions).
... which requires actively sabotaging anything that is being done properly.
Well, the GOP takes power in 2016, and declares that they will "reduce" paperwork by removing... the two simplified forms! Now everyone has to fill out the complete 1040, which is also now strangely cramped and calls out to a dozen different worksheets, since the GOP also wanted to brag about how the form "fits on a postcard", and it has to contort itself to use every square inch of paper. A miserable experience! I miss the 1040-EZ.
If you think about it the 1040 has taken on the more simple case as the default and the more complex cases have been shifted into schedules. That's a good thing in my book.
It's simpler than that: They want taxes to be a pain in the ass so people hate them.
A couple illustrations:
It's very common for people to owe tax at a lower rate than they did the year before, but be upset because they have to write a check (and this is when the amount is trivial relative to wealth, so it's not because of financial inconvenience). They don't think in terms of tax rates, just in terms of do they owe or not. Owing is worse than not owing, regardless of total tax paid. And these are successful, otherwise financially savvy people.
There are also people who try things they think are "tricks" to maximize their refund that are literally just paying more in. They think a giant refund is great, not realizing that it's just money that they could have not sent to the IRS in the first place. Once again, owing bad, refunds good.
This is all to say that I believe people are indeed, to some extent, blindly paying more taxes than they would agree to if they had to write a check every month for the amount due. For a lot of people, even people who don't make very much, if they paid their half of their payroll taxes with a check every month, it would be pretty close to the biggest bill they have each month, and it goes basically unnoticed by most people.
For the record, I don't have any problem at all with current tax rates, but I know very well what they are, and I think if there was more transparency and education, I don't believe it would lead to people wanting to raise tax rates, but that's just my opinion.
And truthfully, it's not a lot of money. I would gladly pay $30-40 just to not have to deal with the hassle of filling out a piece of paper and mailing it and all that. Now that the IRS seems to have a decent electronic system, I'll give that a go this year and see if turbo tax is worth it anymore.
Yeah, turbo tax is a pretty scummy company with all the lobbying and deception. I won't argue that. But their product is genuinely good and provides utility to me, and I'm sure I'm not the only one.
No it is like buying a stick of gum at the gas station, you give the cashier a $10 and he gives you $8 back. That $8 isn't a gift, the cashier was giving you back money you gave him that you didn't owe. The majority of tax refunds are exact this, a refund of your own money that the government took from you, and is now giving back to you without paying interest for holding it for ~1 years
We require any companies who collect interest payments on things like student loans to automatically report that to the IRS. We could then have the IRS fill that in for your tax return automatically.
But special interests don't want that to happen.
For better or for worse, tax software does add utility for most people.
Hopefully this reform from the IRS actually improves the situation.
Between overly complex rules, heavy advertising, and lobbying, the tax prep companies have us all convinced we'll go jail if we don't pay $40-$400+ for prep services.
Yes, there are several million people with special cases. If there were 3 million of them, that's not even 1% of the population. A significant group, but hardly demonstrative of "basically no-one".
Income - [ 3 or 4 basic deductible items ] - [ N * exemptions ] - standard deduction => go to tax table => tax. Done.
If I was an older person who wasn't super comfortable dealing with computer programs, I would absolutely pay a CPA a few hundred bucks to do my taxes. It saves me time and I don't have to worry about screwing it up.
It's the same reason people get food delivered. I'm paying someone to cook food and bring it to my house. It's something I could do myself, but its a hassle that I can pay to avoid. Plus, I can be confident that a professional chef is much less likely to prepare me burnt / raw / untasty food than I would be myself.
In Norway, the government already has the data needed for your tax return: Withholdings, bank interest, capital gains, property income, loans, etc. The exceptions are things like foreign income, property, etc. that don't get automatically reported.
The tax return is automatically filled out for you, and if you don't amend it by the deadline (which you do by logging into the government portal and editing the form, adding additional forms, etc., all digitally), it's automatically submitted as-is.
(And the forms are simple! When I look at my US tax returns, which are prepared by a CPA, I can barely make heads or tails of it. But I could easily do a Norwegian tax return from scratch myself without a CPA.)
Most people don't need to anything at all, even if they have a situation that in the US would require a bunch of number crunching.
The above is also true about most European countries, by the way.
I would love to hear about things the government has done exceptionally better than private companies. Please go on.
Conservation of land is a national priority. As such, no state or private entity should be entrusted or made to be solely responsible for the upkeep and management of said valuable resource for all the people. That's why Yosemite Valley's management was transferred from the State of California to the Federal Government.
As Wallace Stegner said, "National Parks were the best idea we ever had. Absolutely American, absolutely democratic, they reflect us at our best rather than our worst." (Except for that whole disinheriting the native peoples of their own lands thing... but definitely American...)
The argument isn’t “we can do a better job than you” it’s “we are allowed to do this job for you”. Whether they can do it better is irrelevant.
As an aside, if we are looking as a whole, the federal government generally can and does do everything that they do better than the states could do it.
Roads might be the canonical example but I'm not familiar with any examples of privatized roads.
Prisons
law enforcement
firefighting
warfare
regulation of industry
regulation of environment
protection of civil rights
equal opportunity employment
employee benefits
retirement
healthcare
research & development
protection of intellectual property
passenger rail
postal mail
industry standards...
"All right... all right... but apart from better sanitation and medicine and education and irrigation and public health and roads and a freshwater system and baths and public order... what have the Romans done for us?"
[0] https://www.youtube.com/watch?v=Y7tvauOJMHo [1] http://www.epicure.demon.co.uk/whattheromans.html
Also, big one, GPS
Sounds conveniently like Regulatory capture: https://en.wikipedia.org/wiki/Regulatory_capture.
Different stories get told during election season, of course. One of the most perplexing things about politics, though, is the way that everyone generally acknowledges that all politicians are shameless liars, but not during election season, when the person who's hawking the tastiest-looking pile of horseshit is speaking God's truth, and it's just all the other politicians who are shameless liars.
Whats really disturbing is the amount of "my team is the best" thinking that is out of control, which I believe is learned from the various sports franchises? Regardless, when applied to politics, it can lead to a very unhealthy outcome. The worst that can happen if your team loses in sports is: they lose in sports. The worst that can happen in political battles is that you're economy is hamstrung, your community doesn't get the support it needs etc.
Experience in the UK tells me otherwise. Our government has been doing little else for the last decade.
> It's not so much saying that all government is bad, but it's looking at worse case scenarios and balancing risk.
It's funny how worst case scenarios (like monopolies or oligopolies) aren't considered for private companies. Doesn't seem like a balanced risk analysis to me. Internet service would be a prime example of this in the US.
Edit: oh, I forgot about healthcare. You guys are currently living pretty much a worst case scenario (bar there not actually being any healthcare provision).
(By the same people who complained the IRS was targeting them for audits.)
Recall that both companies and countries are abstractions; they are not real. Some people (reasonably) think that it is logically impossible for a country to own something. Others (reasonably) think it is logically impossible for a corporation to own something. Reasonable people disagree on these things sometimes.
I think it is somewhat disingenuous to suggest that these people were simply duped. The average person has tons of exposure to government incompetence in other arenas.
What are your top 5 well-run federal government programs?
Slate likes these: https://slate.com/news-and-politics/2014/04/the-top-dozen-fe... Includes things like land grants, patents, and highways.
Mother Jones likes transfer programs (for efficientcy measured by % of funds transferred, rather than effectiveness of achieving stated goals): https://www.motherjones.com/kevin-drum/2012/01/chart-day-fed...