This is mostly due to the size of the country (compared to, say, Switzerland) and doesn't have anything to do with for-profit tax software.
Anyway: both Switzerland (your example) and Belgium (my example) have multi-layered governments. Belgium's one is particularly complex, with "communities" which are language unions and "regions" that largely overlap but not quite, as well as province-level and city-level taxes. Each of these has their own institutions and most incur taxes. The multi-layered government is far more complex than the US, but this does not result in comparable complexity to my US filing. (I'd also argue it's far more sensitive: secession has been a possible outcome in my lifetime in a way that it really has not been in the US.)
Meanwhile: the IRS has simply agreed not to provide free tax filing software. Why is that good for taxpayers?
I do know that there are weird and frustrating intertwinings of US Federal and State tax codes and I wish I didn't have to deal with that. Kill the SALT deduction!
1. Er, not sure why I brought another small European country into the discussion. I meant to replicate your example but brainfarted.
Mind you that this does not even anything at city level.
Imagine if Illinois was mostly part of the Midwest Region (a governmental entity that transcends states but is not federal and also has a tax authority), but not including Chicago. That'd be close. Also the largest party in its government wants the Midwest to secede from the Union.
At least these are collected by a single entity, the NYS tax folks!
Consider, for example, the deductibility of state and local taxes. This is a source of significant tax code complexity, but various constituencies have howled quite loudly about even reducing the amount of the deduction. I am doubtful that it can be eliminated completely.
If your income is entirely W2 (any stocks sales if any are in tax advantaged accounts) and you take the standard deduction, generally your taxes can be automated easily. That covers most people. Honestly, the only thing that even makes my taxes complicated are investments (made worse by CA diverging from the federal government in matters like HSAs) -- even then, until recently, most of that could be automated from 1099b filings.
Turbotax if anything makes taxes more complex than they have to. There are so many things in their "step by step" for deductions that are completely irrelevant if you are taking the standard deduction. It would be a huge improvement for them to simply pose a question:
"Is there any chance the sum of the stuff below is going to exceed $14k? YES -- itemize. No -- skip"
I suspect they don't do this though to keep convincing users of the need for complex, pricey software.
So I do agree, TT could be much better by explaining the deductions (standard vs itemized) up front and asking if you think you want to answer all the detailed questions.
Mortgage interest was always the big one, so all new homeowners would have to itemize. But mortgage interest goes down over time, so you have to keep doing it every year just to see when it's not enough to qualify.
You can also deduct your home office, as a percentage of the surface of your home and share of the utilities. That's one that might apply to a lot of tech people.
Another big one is charitable donations. Some people give up to $1000 (and more), which could put you over the standard limit.
I think the deductions are really what make US tax complicated for the regular person (businesses are another can of worms). It's like saying: you could pay less tax if you can find of all the ways that the tax code has said you can deduct from your income.
But the IRS gets to bear the brunt of any complexity in the tax code, and they've already suggested free filing. They also clearly already know what to expect in significant detail anyway, since they adjusted my return last year.
This was part of my point with Belgium elsewhere in the tread: Belgium has tremendously intricate (and sensitive) governmental structure, but that hasn't prevented them from making tax filing a postcard for virtually everyone. The actual tax code is a lot more complex than the postcard (though still far less complex than the US' tax code), but the tax authority does the math, suggests a number, and if you have some reason to dispute it you go file a "proper" return. So: yes, maybe we can make the tax code simpler, but that should not preclude us from making _filing_ simpler regardless of how complex the tax code is.
1. eliminate all deductions in favor of the standard deduction
2. once 1 is done you can actually eliminate the standard deduction as well and make it a part of the tax tables with a 0% rate up to various income levels.
3. eliminate the AMT and the NIIT
4. move all FICA taxes to the employee side (which is where the incidence actually is anyways) and thus eliminate the self-employment tax.
5. roll back all the crap about S corps that got introduced in the 2017 tax bill
6. standardize all 50 state tax forms (the rates can be different but the structure should be the same)
Corporate income tax is regressive, because AmaGooBookSoft is much better at not paying taxes than a mom and pop grocery store. But I think you've lost most of the constituents that think that's a good thing after saying you're gonna slash corporate taxes to literally zero.
I'd love to see land tax too, but I appreciate that the Constitution doesn't make that easy. But damnit, if we somehow outlawed liquor, we can outlaw inefficient tax strategies.
And yes, Georgist taxes on the value of unimproved land would have so many benefits.
Can we get a carbon tax & dividend while we're at it? Dare to dream!
1. This simplifies things like crazy, but could have all sorts of spill-over effects. (most notably reduction in charitable giving)
3. AMT, yes. NIIT is only another tax bracket though?
6. This would help dramatically, but I'm not sure how to execute it. CA nonconformity to all sorts of federal tax rules is a huge pain point (HSA being the worse one for the regular person), but it seems CA could care less about the complexity that hits its citizens.
3. Not really because of the weird way it calculates the interactions between capital and labor income.
6. Indeed. I never said the enacting the plan would be easy!
I'm skeptical that much progress can really be made on the latter (for-profit filing) without significant work on the former (code complexity). Perhaps I am wrong though.
Maybe I'll go read about the Belgian tax code. Sounds like some light reading for a Sunday afternoon. ;-)
As far as I know they can correct isolated pieces of information (e.g. wrong numbers from a W-2) but do not have the ability to prepare a return from scratch.
Edit: I mean, they can obviously put all the pieces of information they know about you onto one return and do the calculations. But there will be many pieces they don't know, and I think you are unlikely to get an accurate return without them (or based on guessing). But if the IRS says otherwise I would like to know.
You're of course correct that they do not have every document to prepare a return from scratch: but they do have the vast majority of them (in the cartesian product set of (Person x Document)), and certainly a similar to what other industrial nations who have reduced taxes to a postcard notice have--so the assertion also seems credible to me.
Regarding your second point: the IRS has a lot of documents but it is dwarfed by the total amount of information needed to prepare a return. Even just to determine who your dependents are is a complex flowchart[1] for which there are no official documents in existence that can provide the answers. These kinds of things come up all the time when doing ordinary people's taxes, not just in esoteric situations. (I know because I used to volunteer to do it.)
[0] https://www.propublica.org/article/inside-turbotax-20-year-f...
[1] https://apps.irs.gov/app/vita/content/globalmedia/dependency...
Unfortunately there just isn't much of a constituency in the US for eliminating tax code complexity.
(Imagine the code was so complicated that they didn’t know, and they relied on your honesty. How well would that work?)
In all the countries I’ve lived, the government simply tells you that number. You can dispute it if you think it wrong.
In the US, you have to tell them that number, and you had better have added it up right because they can trivially check. Oh, and you pay for this privilege?
This is not true. Just as an example, I have various business expenses that I incurred while consulting last year. The government has no way of knowing in advance what those expenses are.
I regularly adjust the number, claiming various expenses etc.
I have been audited twice, which was actually a lot less scary than it sounds.
This is normal, easy and doesn’t cost and doesn’t even need complicated software. I have filled in forms, but I believe you can also do it online in the country I’m talking about now.
Most people’s tax is not that complicated, especially with the increased standard deduction and most people not itemizing anymore.