Turbotax et al. lobby heavily to prevent this. Given that much of the relevant information--W2s, 1099s, etc., are already reported, you'd think that this would be easier for a very large percentage of taxpayers. But it would effectively kill TurboTax's business.
Legislators are basically doing triage, responding to perceived consensus. Kinda like a product manager. Think attention economy. There's 10,000s of bills filed every year. No one has the resources or bandwidth to handle that.
Any given legislator has 1 maybe 2 issues that they care about, for which they will advocate an agenda. The rest, they rely on what they're hearing.
Intuit's lobbying effectively drowns out alternative view points. Assuming that anyone anywhere is consistently advocating for something like free auto-filing.
Source: Have lobbied. Know legislators and their staff. Also read many books about legislation. Most legislators would LOVE to hear from their constituents; will bounce out pro lobbyists to give their own people an audience.
Ahh... that makes sense why this is one of the more reasonable descriptions of how lobbying works. HN seems to think it works by guys in $3,000 suits handing over bags of cash to Congressmen.
Your point about legislators loving to hear from constituents is true - one reason why lobbyists are so effective is because there is often few or no other voices in the room. If voters actually organized around some of these topics they'd be surprised how much power they have.
when something doesn't provide a reliable return on investment, they stop spending that money. that's how much you know something works, whether it's buying advertising or congressmen.
With the caveat that the ability to measure ROI exists and is also reliable. See for example advertising, and especially online programmatic targeted advertising: https://hbr.org/2013/03/did-ebay-just-prove-that-paid
They can ignore the lobbyists, but they like the money, and they like not having to campaign against the lobbyist's marketing. Enough to make it difficult to pass reforms.
You can't actually use the word "corrupt" to describe what the legislators are doing, that's painting them unfairly.
All they're doing is lining their own pockets with millions from TurboTax et. al to make sure laws are favourable for those big companies. But because it's perfectly legal, and there are no thugs with guns or drugs or "bad members of society", it's absolutely not corruption.
They usually claim that if people didn’t have to file their own taxes, they would not be aware of how much they are getting taxed. In their view, this would eventually make it very easy for the government to increase taxes without significant protests from the public.
That's what they're system would be in essence, you'd get a piece of mail saying this is what you'd pay taking what we know and using the standard deduction. If you want you could calculate any itemized deductions and resumbit.
That's actually exactly what happened when I failed to file for over a year one time. They sent me all the forms prefilled and asked me to review them and just send them back if correct. Sadly, they weren't.
The IRS can simplify the process, sure. And if you are living alone, have no children, and don't care about taking advantage of any special credits or deductions, then a "file for me" button would be fine. (Though the process for those taxpayers is already in a good place--I filed my taxes for free in about 30 minutes this year.)
But if you, say, have children, the IRS will not be able to "file for you" in any meaningful sense. Whether you are allowed to claim dependents on tax returns is a complicated question that is highly fact-specific. Happily, the IRS does not have cameras in my house checking to see if my children are living with me. I have to report that information to the IRS myself.
Drive for Uber? Your taxes are also gonna be pretty complicated, and there's no way the IRS can do them for you. After all, they don't have any information on how many miles you drove for Uber and what other business expenses you might have had.
Right now, the system we have is pretty good. Most people qualify for free filing, and free-file tools get better every year. At worst, there is an issue of consumer education (psst, you might be able to find a better/cheaper tax filing option than Turbotax).
Maybe it's "bull pucky" to you, but I have vivid memories of my parents agonizing over taxes as a child. The agony they went through is much ameliorated now due to advances in technology.
And thank you for the link, but this news segment basically is big on opinion, low on specifics. Feel free to link me to a detailed article on how non-U.S. countries handle self-employment or dependent tax issues and whether/how those things are easier elsewhere.
Most importantly, most countries do it by simply having much higher thresholds for complicated tax rules applying to you.
In the UK quite a few people don't pay any tax at all, and the vast majority don't pay enough tax to have to file any return.
What impact does a dependent have on your tax that needs to make it so complicated? I have relatively complicated taxes due to two jobs and some unusual deductions, but having a child doesn't really have any impact on my tax return in the UK.
Well, if you are a simple family where everyone is biologically related and living together, then things are pretty simple in the end. The issues come up with mixed families, divorced parents, etc.
As for the dollar values, if you make $30,000 and have 2 kids, you can usually get a $6,000 tax credit or more. The U.S.'s support for working low-income families is carried out through the tax system. Put another way, tax credits are one of the U.S.'s most important social safety nets.
Not a problem, you enter dependents into the wizard, and take them out when/if they move out.
No matter the situation, they accept your word for it. If an audit occurs you will have to prove things with documentation and be held liable for mistakes or fraud.
It's basically a five-minute task that you appear to believe should make tax filing take hours?
I did taxes once in NZ, you go to a website where they have all the data ready. Then you go next, next, finish, adding a deduction or dependent here and there. Takes 15-30 mins.
Children are hard if the parents are separated. You get child support to figure out. And who gets what share of the tax credit is tricky as well. (This is one way for one parent to abuse the other - file fast and claim all the credits, whoever files second now has to prove the first did the wrong thing at their expense)
A task being easier than it used to be doesn't mean that task's process shouldn't be improved or that its existence shouldn't be questioned altogether as a matter of course.
True. But I think progress over the years is a better metric for whether things are in a good place, policy-wise, than "some other country does things better." So I'm not grumpy about the state of the U.S.'s internet infrastructure, but I am grumpy about the state of the U.S. health care system (for example).
> Right now, the system we have is pretty good.
> I have vivid memories...
Sounds like the whole discussion is rife with opinion.
BTW, you have my sympathy, but your story doesn't shore up your argument. It only sounds like tax filing in the States has gotten better. And better locally is not best globally, by a long shot.
In general the States has been shot through for so long with so much corruption (aka special interests and campaign contributions and lobbying) that the citizenry has a perversely skewed idea of what is normal. /rant
True that the US tax system used to be a lot worse and a lot more vindictive. See the hearings during the nineties that led to IRS reform. Horror story after horror story.
But that doesn’t mean it’s a great system now. I would favor dropping exemptions and moving to a lower flat tax, for instance - taxes by postcard. Probably never that way for businesses, but for 9-5ers, it should be way more straight forward than it is now.
A large part of it has been. The standard deduction is high enough now that most people can't take advantage of the deduction based approach. Of course most tax people will tell you to save all receipts, they will happily charge you to look through them and calculate that they are not big enough to matter. If people knew how simple their taxes really were most people wouldn't be willing to pay as much for it.
That ignores the effect of wealth inequality in the US. You may not know a lot of people who itemize, but our elite / political class does at almost a 100% rate.
So long as they want / use it, it will 'trickle down' to others.
I've itemized the past couple of years for various reasons and I have some other complexities. But, yeah, most people--especially if they don't have a mortgage--are just going to take the standard deduction.
Most countries have their version of the IRS "file for you" without any of those difficulties. Everyone reports tax information to the central authority which determines how much you owe. Even complex things like 1099-B, 1099-Div etc. Which is how the current system works anyways, it just eliminates the hassle.
There's almost no scenario where the IRS cannot do this stuff. Think about this fact: your W-2, 1099 investments and most other financial information is already reported to the IRS. They have it already. Absolutely bonkers that people accept anything less than just being sent a bill or check once a year.
> Right now, the system we have is pretty good.
Yeah, big disagree there. If you've ever done taxes in another country you will realize how idiotic taxes are in the US. Australia is literally, 10 minutes per year, and even complex things like investments, stocks...
Yes, those docs are filed with the IRS, but charitable contributions, child status (are they dependents or not this year?), expenses (home office, side hustle, property management etc), and many other things aren't.
If all your tax returns reference are the handful of items you mention, your tax return can be done in a matter of minutes on a short form.
Yes, it could be better, but it's a fantasy to think it should be as simple as getting a bill from the IRS at the end of the year.
These are easily done and in other countries, are fairly simple. Sure it turns your 10 minute tax affair into a 25 minute one. Declaring child status is just a simple form box. Declaring "side hustle" money is a similar affair. Charitable contributions just register with the IRS instead of it going directly to you like a 1099 or W2.
It's still a far cry from the "entire Saturday morning" affair, even using online tax software.
If you think the IRS aren't able to work out how much tax you need to pay... how do you think they're catching people who don't pay enough tax? They must already know!
They don't already know. Sometimes they have suspicions, and then perform an audit, or request more information about a particular detail, by which they get the information they might need.
Only then do they actually know.
For example, you yourself may have filed with the status, "Married, filing separately", but the other person in your relationship may have filed with the status, "Single".
The IRS has no idea who is right without actually talking to the two of you. And because they don't know which status is correct, they don't know how much each of you owe.
They do know almost everything and learning more every day. Of course there are extenuating circumstances, which you will list and have to prove if a question comes up. This is not an excuse for tax filing being more difficult than it needs to be.
The great-grandparent's claim is that they already know. They don't already know. I can list two dozen things off the top of my head that they don't already know.
Should tax filing be easier? Sure. But, "They already know how much you owe." is patently false.
I came here to write something along these lines. For the simplest cases, filing is free and really easy now. Everyone who needs TurboTax now would need something roughly as complicated until our entire tax regime is overhauled.
Adding to the types of really common situations where you do have to provide context the IRS doesn't already have:
- side-hustle contracting (IRS doesn't know what expenditures are for the business)
- stock sales (your broker may not know your basis)
- home improvements eligible for tax deductions
- sold a home (IRS won't know your basis or selling price)
- did you move for a job? IRS won't know whether you are eligible for tax deductions.
- crypto gains/losses
- inheritances (basis again)
I'm curious whether other countries have simpler tax codes that permit simpler filing?
>- stock sales (your broker may not know your basis)
This used to be a real nightmare especially when there were acquisitions in stock, splits, etc. There were a couple times over the years when I just said F' it and put down a reasonable number.
But these days, unless you have some pretty old investments, the brokerages generally track your basis.
Yes, but IIRC if you transfer investments between brokers you are back to tracking basis yourself (if you're lucky, the new broker will allow you to enter the basis after the transfer).
But agree in the general case that it's not a problem for younger people. (Gen X and older may indeed have some of those pretty old investments lurking in their portfolios.)
That's not universally the case at least. I transferred some shares a month or so ago (in a horribly manual process I might add) and the cost basis was transferred over.
I fall into the older bucket but I guess my old 401(K) must have had basis added when it merged with an IRA and none of my other investments lack basis information.
Adding a perspective from Germany, where the tax code is definitely not simple, a major difference I see is that filing is optional for the simple cases because you can only ever get money back. There are some default deductibles already applied to your payroll tax so the tax office doesn't have to deal with super small cases. The big advantage is that Joe Average won't risk getting into a lot of trouble for not filing.
Just to illustrate, let's go through your examples and how it'd work in Germany:
> side-hustle contracting (IRS doesn't know what expenditures are for the business)
You'll have to mandatory file income taxes since the income from contracting is not salary and there are no payroll taxes deducted from it. Not sure how common it is in the US but in Germany the vast majority of people don't have side hustles like this (for a variety of reasons; certainly a bad thing)
> stock sales (your broker may not know your basis)
There's a default tax rate on capital gains (25%) with a 800€ allowance. You assign how you want to split the allowance between your various banks and other capital gains generating accounts (you're responsibility to not exceed them) and the banks will report your cap gains with your tax ID to the tax office. If you did pay taxes it's often worth filing to make sure the allowance evens out. Also, if you want to carry forward a loss you have to file (but you got 5 years to do so)
> home improvements eligible for tax deductions
You'll probably want to file but you don't _have to_. You just won't get the deduction.
> sold a home (IRS won't know your basis or selling price)
If it was the home you lived in, you don't have to file (it's tax free). If it was a house you rented you'll have to file but you'll have to do that anyway for the rental income.
> did you move for a job? IRS won't know whether you are eligible for tax deductions.
Same as with the other deductions, it's in your best interest to file but you don't have to. No (legal) consequences if you don't.
> crypto gains/losses
This gets tricky but if you owned the coins for more than a year (to the day) they're tax free and you don't have to report them. But you better have documentation on this if you ever get audited.
> inheritances (basis again)
This one is actually interesting as it's a completely separate tax and thus separate process from income tax.
There's an allowance based on your relationship to the deceased (500k€ for spouses, 400k€ for children, etc.), if the inheritance exceeds that you'll get a letter from the tax office asking you to file a declaration for inheritance tax. At that point there's not much software that'll help you and you'll better hire a tax advisor :)
It seems the major difference derives from our (American) punitive approach to those who use our meager social safety net.
For example a large swath of Americans earn an income that entitles them to assistance in the form of the Earned Income Tax Credit (EITC). This is (roughly, it depends) available to people who earn < 85% of the median income. But they have to file taxes to get the money they are owed (because we hate the poor in America and this will dissuade them from getting their money). So that's going to be a large set of the country that has to apply or leave money on the table.
For a large set in the middle class, you have to file because you leave money on the table by not claiming deductions.
So even if we weren't all more or less required by law to file, we would mostly have a financial incentives to file anyway.
Oh and anecdotally, side-hustles and second jobs are very common in the US. Poor social safety net, no employment contracts, very low minimum wage, high healthcare costs all doom most Americans to perpetually precarious financial circumstances. So everybody is trying to get a little more so they don't get wiped out.
For that matter, everyone qualifies for free filing--although in practice it gets too complicated for most past some point. I know it sounds like something savages would do but it's actually possible to just fill out the forms by hand if your taxes are fairly simple.
I use an accountant who I've been using for years but if you just have a W-2, a 1099 or two, and just use the standard deduction, it'ls likely pretty simple to just fill out a 1040 form and a state tax form.
I don’t understand the argument. You go from stating that in some cases, the ziRS can’t prefill your taxes correctly - sure, we all agree here, that’s the same in every other country. And then you go on to say that’s why you need TurboTax. Huh? Why not just have the same input boxes as TurboTax, but on irs.gov? That’s what pretty much every other developed country has
This. You can't kill TurboTax with tech, it has to be done with policy. TurboTax is in this position because they lobbied their way to it. Any tech solution will just be further lobbied into oblivion.
This is the solution. We can already do this. A pilot program was run. The problem is that the anti tax wing of the Republican party and Turbotax are actively opposed.
Instead of developing software, we should be writing our representatives.
Because of Grover Norquist and his organization (ironically named Americans for Tax Reform). Their "Taxpayer Protection Pledge" taken by most Republican lawmakers (95% before 2012), locks them into supporting his policies. The problem is that he views any attempt to simplify tax filing just like a tax increase (presumably since people will be less upset about paying their taxes), and uses his influence to lobby against reforms like this.
It's true that the Democratic caucuses, both federal and state level, are much harder to hold together. Every year there's a bill in my state to reign in pay day lenders. Basically banning usury level interest rates on loans. Overwhelming popular support (~80%) and editorial support.
And every year there's a "blue dog" Democrat living in a purple district which bends to the pro pay day loan lobbyists.
Vetocracy is a tough problem. Our civic legacy is to fear the mob, tyranny of the majority. (Thanks Plato.) So it's rare that mere popular support ( >60%) is sufficient to attain progress.
So, to your point, mere 50% + 1 vote ain't ever enough.
Making payday lending illegal will push poor people who desperately need the cash to seek it from organized crime instead.
There’s a reason those bills get stopped and killed. They sound good on their face, but when you dig into the details they harm the people they’re supposed to help.
>Democrats had filibuster proof majority when Obama was president.
For 2 years. And spent basically the entire time barely getting ACA through. Not a lot of "political capital" leftover for battling to have free tax filing.
An Australian friend of mine showed me his tax receipt once and it made me yearn for this. It’s ridiculous what the US has created for its citizens, or rather not created.
The intent of certain lawmakers is to make sure that the filing and reporting of taxes is onerous as a lesson about the illegitimacy of government taxation.
I don't suppose those lawmakers are voting to reduce their pay to $0, eliminating their government-provided pensions, or reducing the need for taxes by giving up any of their other benefits, are they?
Otherwise, legitimate or not, that money is going to have to come from taxes somewhere.....
Also, what does onerous have to do with legitimacy? It's like there's two orthogonal axes and they're trying to make taxes painful to convince the populace to dislike taxes, whether the taxation process is legitimate or not.
I don't know where this idea came from (I've seen it on reddit a LOT), but it's the same here in Switzerland: you do it yourself because the tax department has no idea how much you made precisely, what you can deduce from it (expenses you had to do in order to acquire your income), etc. It just makes more sense to have everyone manage their own taxes.
The IRS already has most of your income information and much of your deduction information. They already use this to validate if your return makes sense.
In effect, the IRS already does most of a taxpayer's paperwork. Since they do this, it might be nice to provide it to taxpayers for review and correction, rather than making us all start from zero each time.
Depends how intricate your taxes are. Perhaps 30 million people file Schedule C, which covers freelance income, gig income, etc.
The IRS will (mostly) know your gross income, but it won't know the exact details about claimable deductions such as business travel, business meals, supplies, etc.
The only way it could know that would be to peer inside your credit-card statements, bank statements, etc. and make judgments about what was work related and what wasn't.
I'd rather do the tallying myself -- which is a chore -- rather than have IRS software make guesses that are a) awfully nosy and b) bound to disadvantage me.
You're right. The IRS emphatically does not have everything. Please accept my deepest and humblest apologies for implying in any way, shape, or form that they do.
In addition to hundreds of millions of W-2s, the also IRS has 1099s and 1098s of various sorts. For the majority of Americans, the IRS already has the majority of their tax data. And the infrastructure already in place to provide this to them. Why not present it along with the opportunity to amend it? Or tally from zero yourself, if you prefer. This is what I intended to communicate earlier, and I can see I failed to be clear.
You're absolutely right. The IRS in no way has everything! Do you think it's maybe worth considering that it might be possible to make many people's lives easier for a very small marginal cost by letting people see what data the IRS already has about them? It might not work for every single person every single time, but it might work for a lot of people a lot of the time.
No, no they don't. At most they have your mortgage interest deduction - side hustle expenses, charitable contributions, etc. are not reported to the IRS automatically.
The IRS already has a web portal that lets you retrieve your data. This could be executed by adding more info to that. The higher cost of administration on that shouldn't make anyone bug-eyed, no matter how wonderful your idea of auto-filing and simplification is.
The IRS doesn’t have your deductions, but at the same time most people don’t have enough to itemize anyway, especially since Trump increased the standard deduction for individuals and families.
I think simplifying the tax code first requires trading in our deduction system for a flat tax or lower taxes across the board. Then you could get to a simple postcard bill every year. Too many special interests to let that happen though.
In the UK vast majority of people don't do their own taxes. Your employer pays the tax on your behalf directly from your salary and updates the tax office as to how much you make. In turn, the tax office tells your employer how much tax to pay from your salary, without any input required from yourself.
In fact most people I work with don't even know there is such a thing as a tax deadline every year or anything like that, because....why would they? if you are a normal full time employee there is absolutely no need to file your own taxes. HMRC has all the information it needs to tax you year on year.
>>what you can deduce from it (expenses you had to do in order to acquire your income)
Well, at least here in UK there's practically nothing you can deduct from your taxes if you are a "regular" full time worker, so that solves that issue.
> Your employer pays the tax on your behalf directly from your salary and updates the tax office as to how much you make. In turn, the tax office tells your employer how much tax to pay from your salary, without any input required from yourself.
Same thing happens in the US. When most people file their taxes here, they get money back because they already overpaid.
For example I spent a few thousand trying to launch a business this year, and that is all tax deductible. So I'll file that with my tax form that my employer sends me (with the salary info prefilled), and I'll end up getting some money back because my taxable income is lower than what the gov't expected.
The government automatically doing it doesn't preclude from letting taxpayers be able to amend it. The vast majority of people have simple tax returns, and all that information is already electronically flying around with unique identifiers (social security number).
It's trivial for government to be able to automatically produce a tax return that's basically almost all done for everyone.
This is exactly how South Korea does the taxation. Employeers are required to report employees' incomes and also deduct the tentative tax. The final tax is set by the year-end settlement where you can put documents for income deduction and tax credit to the National Tax Service. Common documents (e.g. credit card expenses count towards income deduction) are electronically available in one place and it is not very hard to get hold of other documents if you are an employee. In the end you pay or get the delta between the tentative tax and the settled tax.
From what I remember in Switzerland, the forms were prefilled, just like neighboring countries. Your salary was automatically takes from your employer, any declared children are carried over year to year etc. Then all you have to do is correct and add any complex stuff
The usual proposed method would be the IRS calculates what you owe based on the standard deduction because they don't know about most donations or possible deductions.
They'd just assume you want to take the standard deduction--which isn't a bad assumption for a lot of people these days.
My taxes are admittedly at least somewhat complex but, even if I did them myself, I'm not sure how much effort it would save if I had to do a bunch of additions and corrections. Pre-filling would mostly be useful if you could just check your W2, maybe a 1099, some things like dependents, sign it, and file it.
