If you're working a W2 job or contracting for a big company, the government is probably aware of your income and that's where we should be focused on automating tax returns but if your income comes from regular people, they likely have no idea.
Unless you turn the entire national security apparatus around to surveil citizens' income, I don't think it's ever possible for the government to know everything.
How it should work is that the government should show you everything they already know and prompt you to fill out anything they don't and then you submit it. The majority of people would immediately benefit from this. They don't do this for a few reasons: number one being the tax prep lobby that wants to make doing your taxes a burden such that even regular people feel the need to spend money or have their personal financial information gathered by private companies. The second reason is that if the government is already aware of how much you've made, chances are you've already paid your taxes and would either be looking at a refund or other tax credits, the government is effectively spending money to make it easier for you to take money away from it.