What Tax Reform Should Do

And it’s not what most people would think. Between taxes being due today and Il Trumpe deciding to tackle tax reform*, there’s talk of tax reform: how we can change the tax code to do…something. But here’s the problem I would like to see fixed–and I think others would too (boldface mine):

Americans will spend more than six billion hours this year gathering records and filling out forms, just to pay their taxes. They will pay some $10 billion to tax preparation firms to help get the job done and spend $2 billion on tax-preparation software (programs that still require hours of work). Millions will subsequently get a notice from the I.R.S. saying they got the figures wrong, or put the right number on the wrong line or added wrong in calculating line 47 — which means more hours of work or more fees to the tax preparer.

And here’s the most maddening thing of all: It doesn’t have to be this way…

In the Netherlands, the Algemene Fiscale Politiek (the Dutch I.R.S.) has a slogan: “We can’t make paying taxes pleasant, but at least we can make it simple.” It is certainly simple for my friend Michael, a Dutch executive with a six-figure income, a range of investments and all the economic complications that come with an upper-bracket lifestyle.

An American in the same situation would have to fill out a dozen forms, six pages long. Michael, by contrast, sets aside 15 minutes per year to file his federal and local income tax, and that’s usually enough. But sometimes, he told me, he decides to check the figures the government has already filled in on his return. At this point, Michael was getting downright indignant. “I mean, some years, it takes me half an hour just to file my taxes!”

In Japan, you get a postcard in early spring from Kokuzeicho (Japan’s I.R.S.) that says how much you earned last year, how much tax you owed and how much was withheld. If you disagree, you go into the tax office to work it out. For nearly everybody, though, the numbers are correct, so you never have to file a return.

When I told my friend Togo Shigehiko in Tokyo that Americans spend hours or days each spring gathering records and filling out tax forms, he was incredulous. “Why would anybody want to do that?” he asked.

What’s going on in these countries — and in many other developed democracies — is that government computers handle the tedious chore of filling out your tax return. The system is called “pre-filled forms,” or “pre-populated returns.” The taxpayer just has to check the numbers. If the agency got something wrong, there’s a mechanism for appeal.

Our own Internal Revenue Service could do the same for tens of millions of taxpayers. For most families, the I.R.S. already knows all the numbers — wages, dividends and interest received, capital gains, mortgage interest paid, taxes withheld — that we are required to enter on Form 1040.

One reason, though certainly not the only one, Americans hate paying taxes is because we make it absolutely miserable (and the ACA, which requires yet another form didn’t help matters). If you think taxes should increase either because it’s good policy or to balance budgets, you should have a strong interest in making the act of paying taxes far less painful.

And it would help pave the way for actual tax reform.

This entry was posted in Taxes. Bookmark the permalink.

2 Responses to What Tax Reform Should Do

  1. Ketil Tveiten says:

    Norwegian living in Sweden here: in both countries, my tax filing process has always been “1) get pre-filled returns in the mail, 2) check them, they’re correct, 3) log on to the website and click submit”. If you have no changes to make, you can even submit by text message.

    Oh, there was that one time I had to fill in a special form because I was renting out my apartment; that took like 15 minutes and I didn’t have to do it again because they remember that kind of stuff.

  2. jemand says:

    That’s a twelve billion dollar lobbying industry that has a vested interest in this never changing.

Comments are closed.