

In the computer age, why are people still asked to do their own taxes? - amichail

Isn't it feasible for the government to track all major taxable items by computer so that people don't have to report it themselves?<p>This is already done to some extent, so why not take it further and get rid of income tax returns altogether?
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indiejade
A fantastic article by Lessig on this very topic:

<http://www.wired.com/wired/archive/14.05/posts.html?pg=7>

The teaser: _Imagine if tire manufacturers lobbied against filling potholes so
they could sell more tires. Or if private emergency services got local
agencies to cut funding for fire departments so people would end up calling
private services first. And what if private schools pushed to reduce public
school money so more families would flee the public system? Or what if taxicab
companies managed to get a rail line placed just far enough from an airport to
make public transportation prohibitively inconvenient? Pick your favorite of
these outrages, and take note of how it makes you feel. You'll experience it
again when you read the next story - and this one, unfortunately, is true._

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pavlov
That's pretty much how it works in Finland, at least. You get a "tax proposal"
in the mail. If it's missing deductions or you have special reporting duties
like foreign capital gains, you can amend it and return the form; otherwise
you don't have to file anything. (It seems that the majority is satisfied with
the proposal as-is, which presumably is a great relief to the tax office
compared to the old days when everyone had to file their own forms.)

~~~
anigbrowl
On a slightly related note, I saw that when Sweden overhauled their pensions
systems a yer or two back they basically defaulted people to joining one of
two state-run funds and gave everyone a list of alternatives and an easy 'opt-
out' clause (opt out of the state-run fund; you have to pay into some sort of
pension by law). This, too, seemed to work well for most people without
unfairly restricting the liberty of those who would rather manage their own
financial affairs.

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philwelch
The government already collects the taxes for you through withholding. I fear
that if people didn't file their taxes themselves they would lose all respect
and recognition of how much they pay for their government, which is bad for
democracy.

The easier taxes become, the less people complain about paying them. The
government then has an easier job of justifying how they spend that money.
Arguably, taxes should be as inconvenient, difficult, and painful as possible.

On the other hand, having to file taxes really sucks and I would rather not do
it. So there's an argument both ways.

~~~
mdakin
I have often wondered why Republicans/Libertarians/other-tax-haters have never
(as far as I know) made a serious effort to abolish the automated W2-style
paycheck withholding.

If everyone was required to write out checks to the IRS manually on a
quarterly basis like self-employed people are I think larger scale tax reform
would happen very quickly due to grass roots political pressure. Those
quarterly checks really sting sometimes!

~~~
grandalf
Ironically, it was actually Milton Friedman who came up with the idea for
automatic withholding. He later lamented this after he realized the impact it
had on the growth of government.

I think the initial idea may have come from the desire to enforce fairness,
which is a great idea, but sadly it also led to tax increases being far easier
to implement, as all the IRS needs to do is threaten to shut down a business
if it doesn't make the proper withholdings.

As it stands, enforcing withholdings is the primary way that tax money is
collected and it's taken extremely seriously by the IRS. There are even
massive penalties for paying withheld tax late (something like 25% interest).

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brentr
The answer is simple. There is a huge and powerful tax lobby that doesn't want
to see this happen.

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barrybe
If we're assuming that the government is evil and sufficiently organized, then
it seems much more likely that they would want to calculate taxes themselves.
They could make a lot of money just by "accidentally" introducing a few
errors.

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colins_pride
Only if the aggregate impact of those errors is lower than the aggregate
impact of the overpayment mistakes that people make when the file their own
taxes. The latter also offers much more in the way of plausible deniability.

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drinian
There are many old-line industries, especially when lots of money is involved,
where computers have not been used to their full advantage yet; right now
they're just used as electronic filing cabinets with better auditing and
retention than paper.

Also, in the United States, the IRS is prohibited by law from competing with
commercial tax-preparation services. This is why you have to pay Intuit or
TaxACT to file electronically. Presumably, this doesn't help to foster
innovation either.

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mdakin
Income is only part of the equation. You also need a mechanism to track all
business expenses and various itemized deductions. That basically implies that
you can't automate it without having _all transactions_ tracked and
categorized. Which would be kind of scary!

~~~
kscaldef
Most people don't deduct business expenses, and most people don't have
sufficient medical expenses to exceed the 7.5% threshold. For the small number
of people who do, they would amend their forms.

As for other deductions, state income tax & property taxes are already known
to some governmental agency, just need to pass it on up. My bank sends me a
total of my mortgage interest together with my other tax forms, I'm sure they
could file that with the IRS too. The only other common deduction I can think
of is charitable contributions. It would be a bit of work to set up, but it
seems within the realm of reason to have charitable organizations provide that
information to a centraal system as well.

~~~
mdakin
Anyone running a small business (well over 10,000,000 people in the USA) will
be deducting business expenses. It would be silly (nuts?) to fill out Schedule
C but not deduct business expenses.

I suspect an even larger number of people currently itemize deductions.
Medical expenses are one of about a million possible deduction types. And if
you're keeping records you can often beat the standard deduction.

If you can't solve these two cases and can only solve the simplest cases
what's the point really? People with such simple tax situations can do them in
an hour or two anyway. The burden it would place on government and industry
just does not seem justified.

The "complex" returns still need to be "amended", processed, audited, etc. The
very cases which consume the most time and effort today would still be
consuming the most time and effort with no savings given a piecemeal simple-
case-only automation effort.

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jmtame
The Mint.com CEO said he was cooking up something revolutionary, last I heard.
It's still in the works. I wonder if this is it...

~~~
Sidnicious
A commercial solution to the IRS's problem? Existing tax preparation software
takes past returns into account and just asks the user to enter new
information. How would Mint's system be better (aside from having access to
your banking history)? The third-party intervention (and profit) doesn't go
away.

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quellhorst
If you don't file your taxes the IRS will do this for you. But they impose
huge penalties for the service.

~~~
SwellJoe
My understanding is that they don't impose additional penalties, actually.
They just don't include a lot of deductions, and so the bill comes out higher.
To fix it, you then have to file addendum paperwork, which is more time-
consuming than the initial tax filing.

Edit: There will be late filing penalties, however, because they don't file
one for you, unless you fail to file for a long period of time. And, those can
add up to large additional fees.

~~~
quellhorst
They do use the standard deduction. They charge a failure to file penalty plus
interest fees.

You could still come out ahead if they don't know about some income.

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FraaJad
It's much easier in India too. Basically, if you are a salaried person, You
just attach the copy of the taxes that the company has paid on your behalf
(after deducting it every month from your salary) with an one-page form and
submit it.

After coming to US, I was perplexed to see the complexity of the tax filing,
which was incongruent to every other system I've encountered. Getting a
driving license and a work permit were so much easier in comparison.

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rms
I believe this was discussed in the tax day thread, Japan does it this way.

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bonaldi
Yep, same in UK. For the vast majority of people: low-middle income, one
employer, the employer works out your tax and deducts it monthly for you. No
tax reporting forms, and if a mistake is made over the year, it's repaid at
the end.

The only time you do a tax return is if you earn over a preset limit, or if
you have multiple substantial income sources.

~~~
jlees
Or if you're self-employed etc. Technically even if you're renting a spare
room and it's all covered under the rent-a-room allowance you have to do one.
Still, they're fairly easy and you can do them online etc.

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noonespecial
Its especially useful to be able to threaten people with an audit when the tax
code has become so complicated that compliance is nearly impossible.

For example, if a president nominated a certain person for a position that you
happened not to like, it would be right handy if you were guaranteed to be
able to prove that they "broke the law" when it came to filing their taxes if
you looked hard enough. You could get a lot of miles out of that one before
people realized _it works on everyone_.

~~~
fatdog789
Compliance is easy, unless you're trying to hide your income. Pay X% of your
total gross income for the year. Subtract the standard deduction (which is
fixed every year). Subtract state income taxes, if any.

Done. What's so hard about that?

The tax code is only complicated for people who choose to make it complicated.

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nraynaud
we have that for salary in France. But other gains (rented properties etc.)
are not yet accounted for.

Belgium and Germany for example removes the taxes "at the source", which means
that when you get your salary you don't have anything else to pay on it, your
employer already sent the money to the State. I don't know how they do on
other taxable revenues.

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toddh
If you paid tax on gross income only this could work. But because the
government can't know your deductions it would only work if you disallowed
deductions for expenses etc. Businesses might not like that. There are also a
lot of decisions to be made on how you handle specific situations, like
standard deduction or actual expenses for your auto.

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ivankirigin
Cash. And cash means privacy, so it matters.

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nazgulnarsil
tax isn't about raising money. we have fiat money the government can print as
much as it wants. taxation is about keeping aggregate demand for fiat dollars
high.

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nazgulnarsil
kindly point to the factual inaccuracy of my post. our current monetary policy
is about controlling aggregate demand for dollars. this is not controversial.

~~~
grandalf
How does taxation keep aggregate demand for fiat dollars high?

On the margin, people work for their after tax income. If taxes went away,
employers would pay employees the same amount as their current after-tax
income -- why would they pay more than necessary to provoke someone to work?

~~~
nazgulnarsil
because if there was no central demand for money denominated in us dollars
people would be free to use all sorts of competing economic systems.

~~~
grandalf
That may be but you did not answer my question.

~~~
nazgulnarsil
your second question doesn't make sense to me.

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ftse
Tax isn't about raising money... its purpose is to instill fear and drain your
mental energy so you are not equipped to compete with the bureaucratic entity
that imposes tax on you.

~~~
TomOfTTB
I'm reminded of the phrase...

"never attribute to malice that which can be explained by stupidity"

Honestly I'd like to believe there's some secret Government cabal out there
finding indirect ways to drain people because at least then I'd know
Government can do something competently. I mean, even if Government’s doing a
bad thing competently we can fight to change that.

But I think the reality is that big bureaucracies end up creating so many
rules and regulations that not even they can sort it out. Which is why we have
such a complex tax code in the first place and why Government has to force
each citizen to do their own taxes.

~~~
staticshock
It's my understanding that the tax code is complicated because we are a
loophole abusing people, and we must be handled with kid gloves. It's not just
a matter of "chaos and stupidity breeding new bureaucracy." The goal is more
noble: create a system that can't be gamed but is flexible enough to account
for every exchange of money, as well as many non-monetary exchanges of some
value.

~~~
TomOfTTB
Consider this though: Maybe congress thinking it can create a system that
accounts for every exchange of money and not have loopholes is the stupidity.

I personally think most bureaucracy starts out with good intentions. The tax
code included. But with every well intentioned law to close a loophole they
added more and more complexity and therefore more and more possible loopholes.

~~~
staticshock
What's the alternative?

