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Comment by grandalf | Hacker News Reader

The best way to simplify tax preparation is to simplify the tax code. The percentage of people who save money by itemizing deductions is extremely small, as is the percentage who claim (or are eligible for) any of the more generous deductions.

Doing taxes in the US feels like going through a garbage can of bad social program ideas, bureaucratic waste, etc. Then to make matters worse we get expensive wars...

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The annoying part about all of this is that our taxes are already done. Due to various required forms for businesses, the IRS pretty much knows exactly what you make and how you did it.

Banks file forms. Charities file forms. Employers file forms. They know how many kids you have, they know how old they are, they know if you own or rent, and how much your mortgage is and the interest being paid. They have info on your outstanding student loans. Except for the edgiest of edge cases, there really should be no surprises. Even a moderately powerful desktop should be able to precalculate the taxes for everyone in the country in less than a day.

Why is filing taxes even a thing anymore? Hell, at this point, I wouldn't be surprised if Facebook could do our taxes for us due to all of the info they have. Our tax system is stuck perpetually in 1960, and it's just sad to watch.

As I said in the other posting of this, it is already done at some point. You get most of your tax forms before the IRS does, and you submit your tax return before the IRS processes most of them. They can't verify the information on your 1098s, 1099s, and W2s until the businesses that generated those forms submit their taxes and the IRS processes them.

Yeah, I didn't see that there was a previous post; sneaky. In any case, that just accentuates my point, really. Were this more automated, the businesses wouldn't need to file either. If forms were handled more like an API, i.e. filed when expenses/income happens, it would all be live info.

The government bitches about the digital age stealing their income, but they're not even trying to adapt. Nobody anywhere should have to "file" anything. The very act of buying and selling means it's already on file somewhere, and that means a live view is possible.

Unless you're using computers from 1960...

Many if not most businesses file taxes and tax forms on a monthly or quarterly basis. Between 75% and 100% of the relevant data is already in the IRS's hands. Businesses also generally don't wait until the deadline to file.

Only businesses that withhold taxes from employees, and then only on the employees. Principals who are not classified as employees, those who qualify as "family employees", and 1099 contractors do not report anything until the end of the year.

> The best way to simplify tax preparation is to simplify the tax code.

That much I absolutely agree with. A flat tax would require a single tax form the size of a business card.

> The percentage of people who save money by itemizing deductions is extremely small, as is the percentage who claim (or are eligible for) any of the more generous deductions.

Not true at all. Anyone who owns a home itemizes to deduct interest. Anyone who pays enough state taxes itemizes because you can deduct state tax payments on your federal taxes.

I do agree that taxes should be drastically simplified, but in the process they would also need to be lowered so that the average person pays the same or less in taxes as they would have with today's high taxes and deductions.

Right, many people do put down their home interest, real estate taxes, medical expenses, sales tax on a new car, etc...but even then, most peoples' itemized expenses fall below the standard deduction, especially for married filling joint.

So yes, a large percentage of people are just getting the standard deduction.

Generally around 30-35% of taxpayers itemize. So a minority, but not an insignificant one.

Not necessarily anyone that owns a home deducts. Consider that the median home price is $188,900. If you have a loan of 4% (current rates), that puts the amount of tax you would pay at about 7k for the first year. If you are single, this is just over the standard deduction amount. If married, it is below.

So, yes, plenty of people in the "we can afford expensive houses" category are in position to deduct. Majority of the nation? Not so much.

A progressive tax would require the same size tax form, even a progressive tax that went negative at the lower incomes.

Flat isn't the simplification -- elimination of the billion deductions is the simplification.

A flat tax isn't progressive though (unless modulated by significant exemptions and deductions, and then you're back where you started). And effectively regressive once you factor in diminishing marginal utility.

Not when you take into account that the tax form needs to include instructions, and any necessary tables.

> Flat isn't the simplification -- elimination of the billion deductions is the simplification.

If you have deductions, it isn't a flat tax. "Flat" typically implies both rate and lack of deductions.

Ok, it would require 30 seconds of 3rd grade level math. That's clearly unacceptable, and we need to instead pursue a solution that pushes wealth upwards. Because simplicity, right? No other agendas involved there? Let's talk about job creators.

There are many arguments in favor of a flat tax beyond just simplicity, fairness among them. Also, I wasn't just suggesting a flat tax, I was suggesting a much lower flat tax.

If you took current government revenue from income taxes as a percentage of total personal income and just used that as the flat tax rate, that would indeed be quite unreasonable, mostly because that revenue number is far too high. On the other hand, a flat rate in the 4-5% range might not be unreasonable.

Or, alternatively, a simple formula that would still count as "flat tax":

    tax = flat_rate * max(income - floor, 0)

Where "floor" is a threshold below which you pay no taxes. That would address the set of people for whom even a tiny increase in taxes could make the difference between making ends meet and not.

Let's be honest, the tax code is used as the means to influence social/economic decisions, without having to impose any laws. Even take gay marriage as an example...many states do not allow it still, however; because the IRS has said you can file married filing joint as a gay couple...as long as you were married in a state that allows so, even if you re a resident of a state in which it's illegal, you're good to go. This by itself pretty much made gay marriage legal nation wide. This is just an example, not that gay marriage should or shouldn't have been made legal, but should it be done in this way... using the tax code instead of ratifying the actual laws. It's a long, dark road we have started down with this method, and something needs to be done about it.

Is it really that dark a road to have the IRS pass a simple rule that simplifies tax filing and brings it closer to people's lived experience of keeping their finances as a family unit? They wanted to save themselves some paperwork by allowing people who cohabit as a family unit to file taxes as a family unit. How is that a long, dark road to having the IRS tell everyone how to live?

> The percentage of people who save money by itemizing deductions is extremely small

I don't know where you're getting that. The only number I can find on it is an unsourced assertion that more than 60% take the standard deduction [1], which still implies that on the order of 1/3 of taxpayers itemize. Hardly "extremely small".

[1] http://abcnews.go.com/Business/tax-tip-choose-standard-deduc...

Anyone who bought a home in California in the last 10 years probably saves money by itemizing. Or any other high cost state with decently high income tax. It isn't huge but I wouldn't call it extremely small...

Any tech worker probably saves money by itemizing in California too. State taxes and salaries are high enough for that.

When I lived there I saved a tiny percentage by itemizing about half of the years, but then got hit by the AMT so it was all a massive waste of time.

I could see that homeowners in CA would benefit by itemizing, however a simplified system could make something like mortgage interest much easier to factor in.

The stated purpose of making mortgage interest deductible is to make home ownership more affordable. We should take a careful look at whether it accomplishes that goal.

My not well studied understanding is that people price homes based mostly on the monthly payment they will make, so the mortgage interest deduction tends to make them willing to pay more for a given home. Rising prices do not make housing more affordable.

People seem buy houses based upon how much money a lender will give them. Hence the whole housing bubble problem. I'm not sure if lenders factor in deductions or not.

That has a very strong relationship with the monthly payment that they can manage.

But if lenders don't factor in the deduction, has no relationship to being able to deduct your mortgage interest.

> My not well studied understanding is that people price homes based mostly on the monthly payment they will make, so the mortgage interest deduction tends to make them willing to pay more for a given home.

As with any subsidy, you'd expect both an increase in the market clearing price of the subsidized good and an increase in the number of units sold at the market clearing price (that is, it increases both price and affordability), unless you have either perfect elasticity or perfect inelasticity, neither of which seems likely with homes.

> The stated purpose of making mortgage interest deductible is to make home ownership more affordable. We should take a careful look at whether it accomplishes that goal.

To the extent it does, it does only for people near the boundary of being able to afford to own a home, and does so (ceteris paribus) at the expense of everyone who isn't paying interest on a mortgage, including people too poor to do so even with the deduction -- who it therefore makes less likely to be able ever to afford a home.

You'd do at least as much to make home ownership -- but also lots of other things -- more affordable by getting rid of the deduction and cutting base rates on below-median incomes such that the net result was revenue neutral before considering indirect economic effects.

> The stated purpose of making mortgage interest deductible is to make home ownership more affordable.

I would be happy to see the deduction go away along with all other deductions :)

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