Filing taxes: It shouldn't be so hard
economist.com
economist.com
Personally, I don't want filing to be simpler. Every time it gets simpler to file, it also becomes simpler to add more taxes and people don't notice the difference. It's only when people have to do their taxes that they realize how screwy our system is. The 1099 independent contractors understand this one.
When you have a buggy piece of software, it's considered foolish and short-sighted to just add patch after patch after patch without stopping to consider that the underlying system itself might be flawed. Then you either scrap the system or refactor the worst/most complex pieces into something simpler and more reliable.
The tax code is IE6 circa 2002. It's still "the standard" because we haven't stopped to consider what might be better.
Can you point out a time where complicated tax forms prevented a new tax, or are we just saying it's better for people to bitch about every tax they have to pay instead of just some of them? Basically I can't see where this statement could come from.
For those who care about progressive vs regressive - the fairtax proposal actually proposes a pre-bate to families to allow for income disparities and the affect on lower income families.
One would think it would be possible to create a similar pre-bate system to assuage concerns for a flat tax.
There's no reason why this essential feature can't be combined with a progressive (read: more humane) system by adding a gentle slope.
Empirical evidence from countries where tax forms are prefilled doesn't seem to support this notion very much.
Maybe. . . but why should a person need to hire a CPA if he is, say, a construction worker who earns < $25K per year?
The actual problem is that the core tax code focuses on deductions rather than income. That is, the tax code has become more complicated over time because all the incentives are going to businesses and individuals to maximize deductions in order to attain as low of a taxable income as possible. The "maximizing deductions" side of the coin almost creates something of a stack overflow problem because of the the recursion.
I've thought for a long time; definitely time to refactor. One idea from awhile back -- http://ink.hackeress.com/2012/11/re-engineering-tax-code-par...
Consider complications like calculating depreciation for capital equipment. All the schedules aren't there because of kicks--they're there because allowing an immediate deduction for an expense that creates a capital asset usable for years is just a mathematically incorrect way to measure "net change in wealth" when considering the time value of money. Other complexity comes from using discrete sampling periods (yearly tax returns) for what is a continuous phenomenon (changes in wealth). That's where things like net loss carry-forwards comes from. Other complexity comes from the intricacies of the "net" (versus gross) part of the equation. You can think of things like childcare deductions as a sop to the fact that childcare is something people buy so they can work, and thus not consumption.
The software analogy is really apropos. I'm pretty sure Windows is over 50 million lines of code at this point, and Linux is over 15 million. That's a million printed pages for Windows, and 300,000 printed pages for Linux. In comparison, the entire U.S. federal tax code is 73,000 pages: http://3.bp.blogspot.com/-3zoNtmhcQmE/T41zkm0VE6I/AAAAAAAAFM....
Are Linux and Windows unnecessarily complex? Or is there just inherent complexity in creating an operating system that runs on everything from supercomputers to cell phones (Linux), or is bug-for-bug compatible back to the 80's (Windows)?
Don't get me wrong, the tax code should be simplified in every way possible. But when people say stuff like it only exists because "we haven't stopped to consider what might be better" that sounds a lot to me like the guy on every engineering team who wants to scrap the big, time-tested system and do a rewrite. Go to Microsoft, tell them that their system is just "patch after patch" and then volunteer to rewrite the whole thing. See what they say.
We could get rid of most of the corporate tax code that way -- and corporate taxes, as you point out, are always gonna be complex.
Input: Personal information, deductions, W2s, 1099-Rs, and other relevant forms in standardized ASCII text format.
Script: A python version of form 1040 or whatever you are using.
Output: All relevant columns filled in (amount owed, refund size, etc.)
Time taken each year: < one hour.
What I would really like (in my vision of a perfect world) is that companies would be required to issue W-2s and similar forms already in this text format. But anyway OpenTaxSolver looks really cool and thanks for the link!
The complexity in the US tax law is largely due to the kickbacks inherent in the system. People donate money to congressmen, who shove favorable tax clauses into legislation.
The result is a tax system even the IRS can't understand.
You log in to the website, and go through a 20 (or so) step wizard where you confirm or add a missing item, etc. Next, next, finish. Done, and entered into their system. No studying instructions, licking envelopes, buying stamps, or writing checks, waiting months for a refund, or any of that bs.
Meanwhile it's the Dark Ages over in IRS-land. Unless you want to type all your financial information into an unknown third-party site (I don't), you better get out your pencil and calculator, and/or enter it into a PDF for printing.
Not to mention wading thru 70 pages of useless instructions for the blind, disabled, parents, pensions, veterans, itemizing, AMT, self-employed, health savings accounts, paying alimony, etc, etc. You may be one of those, but likely not more than one or two. The rest are wasted time, energy, and cognitive load. Worksheets, schedules, forms++ that could be automated.
If it's not obvious I find the IRS process disgusting. To those that say it is the tax-code that is the problem, while partially true, doesn't take into account the wizard process. The wizard simply doesn't ask you for information that doesn't apply, e.g. if you have no kids it doesn't ask about child care credits. It makes the process much easier.
Yes, yes, I get that a graduated income tax might be necessary to pay for the things our society has decided to pay for, but calling the current situation fair is Orwellian.
"With the prebate program in effect, those earning less than $15,000 per year would see their share of the federal tax burden drop from -0.7 percent to -6.3 percent. Of course, if the poorest Americans are paying less under the FairTax plan, then someone else pays more. As it turns out, according to the Treasury Department, “someone else” is everybody earning between $15,000 and $200,000 per year." [1]
No thanks.
[1] http://www.factcheck.org/taxes/unspinning_the_fairtax.html
Even if you give credits to the poor (which means we still track all income) how would you ever take a 'fair' amount of tax from the rich? The current tax on someone making $400K from a job is ~37% with federal/state/local. So you're reducing their tax burden more than half (if they spend 100% of what they make). In fact, they spend much less than they save, so if they buy $50K of stuff a year, their taxes are nearly eliminated ($8K in taxes versus $400K income). You can't provide the lower income people enough relief without adding to the debt (or raising the sales tax to something absurd, in which case low income people would need weekly credits or something).
This idea is insane.
Finland has a VAT of 24%. We also get taxed for income, and there are lots of other hefty taxes too. Strangely enough, this doesn't seem to be enough for our little country to live within its means though. Go figure.
> Even if you give credits to the poor (which means we still track all income) how would you ever take a 'fair' amount of tax from the rich?
What's a "fair tax" on "the rich"? Do you deserve to get raped harder just because you've made a few hundred thousand dollars for yourself?
Yes.
Oh, and it's not about "affording" anything. If it were, it would be a voluntary transaction, much like buying a Retina MacBook Pro if you can afford one.
Ideally, we get past the lobbyists and create a simple tax system. I do wonder what the revenue neutral standard deduction + flat tax rate would have to be.
If I have a secondary income (and I was inclined to declare it) then I would have to file a return with this info, I think it is all done online now.
I guess it just has always been the norm over here in the UK and so no one complains about it...
If you've got more complicated affairs, you have to do some paperwork, but that'd be also true if the UK had the US system; it's very easy for most.
There's a middle-ground to be found between easy taxes and telling the government everything. The UK government knows monthly pay and takes tax from that accordingly. If one has any other taxable income, or any reason why one should pay less tax, it's up to that individual to tell them. This makes taxes easy (most people never talk to the tax office at all), and maintains privacy.
Most people's significant sources of income are already reported to the IRS.
If they can't do it properly, I can't do it properly. (because IANATL)
(e.g. mortgage interest is reported, real estate taxes are reported, local sales tax is a calculation in most cases).
Where they're not going to get it right is if you've got a Schedule C, since none of that is reported elsewhere.
when i moved to the US, ernerst&young (the most incompetent financial firm i've ever worked with) besides doing several things wrong out of incompetence, told me to fill a form listing my overseas banking account. i checked that it was almost mandatory (the wording is not very clear) so i filled and submitted it.
then now, a few years later, checking the IRS website, they call you to fill that form and boast that "since some 3 years 30.000 people informed the IRS of their overseas accounts"
...really? 3 yrs... and there's 30.000 people in the US with overseas accounts?
So yeah, i can understand why people do not want the IRS to be informed of everything. it seems that trying to leave it in the dark is the way to go.
I do not lie to the IRS (you are guilty and have to prove yourself innocent), and as a general rule in life, I try not to lie to people.
If the IRS has all the information it needs to fill out my taxes, then several parts of the Bill of Rights are being violated. I cannot fathom how the IRS would force churches to report each contributor for example.
- they getting the info
- you being forced by law to send them the info? (after paying a tax preparator just to fill in the forms)
nobody is talking about IRS knowing think you DON'T have to report to them to begin with. It's about the IRS just presenting you the information they already have.
My point is. Many, many, many people outright omit required* information to the IRS based on that number i saw earlier.
*required= info you would have to give out, otherwise you would be lying.
Please don't conflate the tax code and filing, they are separate issues. It would be nice to solve both, but the solving of one doesn't require the other.
[1] http://www.nbcnews.com/id/8134597/ns/business-motley_fool/t/...
I used it this year. Make an account and try it out, let's you dig into the original tax forms themselves too. Only in Canada though :)
I work, wife works, own a (very) small business, rent two houses = 40+ PAGE 1040
Tax code = INSANE