Tax Filing is Difficult
Why is filing taxes so hard for so many people?
The average American, according to the IRS, spends roughly 11 hours every year filing taxes. The average cost is $210. Culturally, tax season is infamous for bringing added expense, effort, and frustration. An entire industry exists solely to take away some of the pain of filing taxes. What is it about the American taxation system that is so broken? Other developed nations have vastly easier processes. Shouldn’t the government have a vested interest in making it simple for citizens to pay taxes? After all, the government is the one asking for money. Imagine going to the grocery store and being expected to calculate your bill yourself, on a deadline, with ridiculously complex accounting forms. Payment is supposed to be seamless. Why is the tax code a complete mess and why has years of political rhetoric done absolutely nothing to fix the IRS?
The answer is about as complex as your 2021 tax return promises to be, but as with most things, the root cause is money.
Free Tax Filing
Free tax filing would be a major benefit to America’s millions of taxpayers. There’s no reason anyone should have to pay a corporation or a lawyer for the privilege of paying the government. However, there is a powerful coalition of interests opposing the development of universal free tax filing. Call it Big Tax. Politico reports that the tax lobby, made up of companies like H&R Block and Intuit, has spent over $7 million lobbying Congress to oppose free tax filing. In a deal with the IRS called the “Free File Alliance,” the tax preparation companies agree to offer free filing products as long as the IRS does not do so themselves. But Big Tax is crafty. TurboTax and H&R Block use deceptive marketing and search suppression to hide their free alternatives. They also add restrictions, so that only 100 million Americans out of the entire taxpaying base is eligible. 100 million, while not even half of all citizens, is still a large number; yet, Big Tax has engineered it so that only 3% of those eligible actually file taxes for free. A 2019 investigation by ProPublica found that companies like Intuit were deliberately misleading customers who qualified for free filing into paying for their services. To make matters worse, due to the agreements with tax prep companies, the IRS is prohibited from developing its own free software.
Why Are Taxes So Complicated?
Another surprising player in the bid to make tax filing more difficult is the anti-tax lobby. While it may seem counter-intuitive, anti-tax advocates actually believe that if taxes are too easy to pay, Americans will be less averse to tax increases. They lobby against tax changes like prefilled forms and free filing with the hope that taxpayers grow ever more frustrated with the system and rebel at the ballot box.
Additionally, American taxes can be more complex than other countries due to our system of federalism. Most taxpayers must file local, state, and federal taxes. Some people must file taxes in multiple states, all of which have different laws, regulations, and tax codes. By its very nature, the U.S. tax system is complicated. That being said, the corporate and special interests have made an already challenging process even worse.
How to Fix the Tax System
The most obvious way to fix the tax system is to resist the influence of lobbyists. The IRS ought to move quickly to launch a universal, easily accessible, fully free system to file federal taxes. It ought to be robust and available to every single individual taxpayer. In addition, the IRS should pre-populate forms with information that it already has, which would reduce the time spent filling out boxes and writing down things that the IRS already knows. There is also a possibility that some sort of direct payment program could be developed, perhaps in conjunction with proposals for Universal Basic Income or the citizen-owned State Investment Fund.
States should follow this lead and launch their own systems, preferably compatible with the federal system and those of other states. Although the codes may differ, there ought to be a seamless way to transfer data and tax information from one jurisdiction to another.
Lastly, the tax code must be simplified, a prospect which is daunting for legislators. Politicians have called for such simplification for decades, to no avail. The web of rules, loopholes, codes, and forms that makes up the U.S. tax system is a leviathan. Conquering the task of simplification and condensing is sure to be challenging, but Congress must at least give it a shot. As time goes by, the system only gets more complex. We can keep kicking the can down the road, but at some point we will be crushed under the burden of legalese.
Americans fought a revolution over taxes once. In order to stave off the next one, Congress must kick out Big Tax and begin prioritizing the taxpayers. After all, we’re paying their salaries.