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Comment by harryh | Hacker News Reader

People say this, but it's not really clear to me if this is true. When I look at my (more complex than average) tax return I see a lot of ways to simplify things but most of them would involve going against a major interest of one of the two parties.

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.

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Most people are solidly in standard deduction territory after TCJA.

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 true on useless questions in turbo tax. I used credit karma this year and it was way easier than turbo tax simply because i didn't have to answer a million questions.

Yeah, no. That TCJA (aka Trump's tax cut), moved me from solidly in deductions to just under standard deductions. I guess financially it's slightly better, but it doesn't simplify my taxes. Because now I'm just on the limit, so I have to do the itemization work anyway. I do use TT, and did all my itemizing (an evening of work), just for it to say "you get the standard deduction now!"

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.

There are two points worth separating here: tax code complexity and for-profit filing. The two are obviously interrelated, but different: Intuit wants for-profit filing so TurboTax makes money, and Intuit also wants tax code complexity to increase the barrier to entry.

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.

Yes, two different but interrelated things.

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. ;-)

Can you think of an argument that would be convincing? The IRS already saying they can do it (when they obviously already do the work internally) as well as other countries with more complex governmental structure pulling it off seems like it would be convincing.

Can you point to where the IRS has said that they can prepare returns for taxpayers?

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.

Sure: the ProPublica article linked elsewhere in the thread about how the IRS keeps saying "we should just do Free File soup to nuts", Intuit does a bunch of lobbying, and the IRS goes "oh okay I guess we won't do Free File for a while".

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.

Sorry, I'm still not clear what you're referring to. There are multiple ProPublica articles linked in this thread and I'm not sure what statement you're paraphrasing with your "soup to nuts" quote. Are you referring to this article[0], which says the OMB suggested in 2002 that the IRS develop a free option, and the IRS opposed it then and consistently since?

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...

Incidentally, the harryh plan for simplifying US taxes:

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)

My favorite one that I usually keep to myself because it makes me sound like a loon since it's so far out of the Overton window (but quite popular with economists): abolish corporate income tax.

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.

You're absolutely correct on these IMHO. There is, at least, a multi decade trend of reducing corporate income taxes. Unfortunately all the complexity is still there even if the bills being paid are smaller.

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!

I generally agree on this working out well. As nits though:

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.

1. I'm mostly comfortable with this, though willing to concede that it should be thought about more carefully than I have.

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!

https://www.propublica.org/article/inside-turbotax-20-year-f... dives in, but it’s been covered on a gazillion mainstream news coverage over the years.

Yes, I've read that before. I think there is some truth that Intuit has had some role in limiting tax software rollouts by the IRS. However I think it's probably overstated. There is a ton of complexity in the US tax code due to various political interests of the DEMs or GOPs. It's this complexity that is really the source of most of the problems.

Unfortunately there just isn't much of a constituency in the US for eliminating tax code complexity.

No matter how complicated the tax code, the government know in advance how much you should pay.

(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?

No matter how complicated the tax code, the government know in advance how much you should pay.

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.

Yes. This is normal in all those countries with free easy tax filing.

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.

How is that complex? Just like employers send the government your W2 information every year, the states could also.

Most people’s tax is not that complicated, especially with the increased standard deduction and most people not itemizing anymore.

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