What if the government filled out your tax form for you?
As midnight approaches Monday, countless Americans will finally be ready to press the send button on their computers to send their federal and state tax forms to Uncle Sam.
They will do so after spending days gathering receipts and forms, shelling out money for computer software to help them settle what they owe or what the government owes them, or paying money yet. more important to hire a professional to do their taxes for them.
But should it be so? No, says Cliff Robb, who teaches personal finance and human behavior at the University of Wisconsin-Madison.
It is not that our tax system is simple. Because it is not. “I believe the United States has one of the most convoluted structures and also takes a lot more effort to figure out,” Robb says. “This forces individuals to engage much more directly with the tax system than other industrialized countries.”
Even for people who don’t pay a fee to a tax preparer or tax preparation software, there’s a significant “opportunity cost” to filing, he says.
“Most people are going to take a weekend or a few days,” says Robb. And it’s not just the weather. “It creates more stress than necessary, I believe.”
The potential technical shortcuts that might exist do not exist, even when the taxpayer uses digital technology and completes a tax return online. “You can’t even export your W-2 [data] in this document,” says Robb. Instead, the taxpayer must copy the figures by hand.
This creates opportunities for error and cause for concern, he says. Not all of these worries are based on probability, he adds. “Most people won’t be audited, even though it’s an imminent thing people think about.”
The whole process can be so daunting that there are people who qualify for refunds but don’t file their tax returns and therefore miss out, Robb says.
Yet in many countries with an annual income tax, the system is almost the reverse of what happens in the United States.
Taxpayers receive a form from the government which is already filled out. The taxpayer reviews the document and, if there is a disagreement on the bottom line, can usually dispute the government’s figures, presenting evidence to support a different conclusion.
It’s not that they have a flat tax – a system where everyone pays the same percentage of their income, regardless of their annual income. It’s the underlying process that’s different.
Despite the complications of the U.S. tax code, Robb says the model of having a pre-filled government form that comes to the taxpayer could work in the United States.
Uncle Sam already has most if not all of the data most people need. “The federal government has an idea of what you should pay,” he says. But instead of telling the taxpayer, “they say, ‘You tell us what you think you should owe.'”
Yet for the vast majority of taxpayers, it’s not necessary, says Robb. “It should be so simple. Most people don’t need the complexity of a tax return.
So why doesn’t the United States do things like these other countries?
“There are vested interests in the system being complicated,” Robb says — including software makers like TurboTax and national tax preparation chains.
In 2017, the nonprofit investigative news site Pro Publica reported on the millions of dollars Intuit, H&R Block and other tax preparation industry players spent lobbying to prevent the federal government to offer an American version of the model that is so popular elsewhere.
Don Moynihan, who teaches public policy at Georgetown University (and formerly at the Robert M. La Follette School of Public Affairs at the University of Wisconsin) wrote the sad story on his Substack site Thursday about a proposal to provide free electronic tax filing for everyone, advanced in 2001 by the administration of President George W. Bush, to be “strangled by the private tax preparation industry under the guise of public partnership -private “.
Robb acknowledges that some people might be reluctant to adopt a system in which the Internal Revenue Service tells them what they owe instead of having them add it up themselves. “But if they’re using accurate data and it’s data you can cross-check, that’s not a problem,” he observes.
But he sees little support for system conversion. “I don’t think that’s a clear enough question for the voting public to put their weight behind this kind of change,” Robb said. Awareness – or lack thereof – is one of the reasons.
“I think if people realized it was as easy as hitting a key and the next day you got your tax refund, there would be a lot more demand for it,” Robb says. “This is a common consumer issue, where we have a vested interest in very deliberately funding resources toward a goal,” and no countervailing group with the same kind of influence.
This story originally appeared in the Wisconsin Examiner.