There's no reason the government couldn't just tell me how much money they took each year and give me a chance to contest it if I thought it was wrong.
One of my best friends lives in Tokyo and every time I have to think about taxes I get this little pang of jealousy at how sane and un-infested with rent seeking trashcans (intuit etc.) the Japanese system seems.
If you need the government to behave against the best interest of the people in order for your industry to exist maybe your industry shouldn't exist.
>"There's no reason the government couldn't just tell me how much money they took each year and give me a chance to contest it if I thought it was wrong."
Behind the scenes, the IRS already has a well informed idea of how much you owe, based on the information submitted to them by your employer and a few select third parties - such as your bank or broker. The challenge is that you personally need to report additional information for things like capital gains tax on asset sales, any credits/deductions you wish to claim, and changes in your living arrangements or life status.
For the majority of people who file using 1040-EZ, you're basically just confirming what the IRS already knows from its own data collection along with some possible adjustments. It would be possible for the IRS to collect even more information, but that does seem rather intrusive and unwelcome to most American's sensibilities.
There have been several proposed bills that would create a pre-filled tax form system, but they always get quietly sidelined by tax industry lobbyists.
I think a change in language would go a long way. The average American spends 13 hours and $200 per year to fill and file their taxes. This expense is itself a tax, albeit an indirect one. "This tax season, we want to save you money, and pre-filled tax forms will do just that." "The tax industry and their lobbyists fight tooth and nail to keep our tax code complex, and every year this costs you money. We want to fix that."
> There have been several proposed bills that would create a pre-filled tax form system, but they always get quietly sidelined by tax industry lobbyists.
Not just industry lobbyists. Another big part is Grover Norquist's "Americans for Tax Reform" and similar groups. They have a lot of influence with about half of Congress.
Here's a PowerPoint presentation [1] Norquist presented to the President's Advisory Panel on Federal Tax Reform in 2005 explaining their opposition to free filing.
It's short so I'll paste the text from each slide here, with the slide titles marked with dashes, so people don't have to find a copy of PowerPoint (or LibreOffice or Keynote, which also can open it fine).
---- Implementing a “Return-Free” Tax Filing Scheme
Presentation to the President’s Advisory Panel on Federal Tax Reform
Grover Norquist
President
Americans for Tax Reform
May 17, 2005
---- The Current System
Tax filing is citizen-based – taxpayers tell the government what they earned and owe
---- Under Return-Free
Tax filing would be government-based – the burden would be on the taxpayer to challenge the government’s findings -- essentially an audit of every single American taxpayer
---- The Fox Would Guard the Henhouse
The same agency that collects taxes would be the tax preparer – the motivation to maximize revenue would dominate both ends of the process
---- Return-Free is a Tax Increase
The true goal is to increase revenue. The government knows few taxpayers will challenge its findings
---- Taxes Should be Visible
Doing taxes keeps citizens aware of the tax burden imposed upon them by the government. A Return-Free scheme would allow the government to raise revenues invisibly
---- The California Example
The State would not guarantee the accuracy of the returns it prepared – the taxpayer was removed from the process, but left with the responsibility
The pilot program achieved 50% less uptake than planned
Comments by CA officials tell us that the true aim was increased revenue
So much BS in these lines. For whatever record IRS already has on me, there is nothing my version of the filing can change. It's not like I can arbitrarily remove an 0 from my AGI and "challenge" IRS to accept my version. Then why demand me to repeat the duplicate information? "keeps citizens aware of the tax burden" - Sure if some people want to be aware, but I'm sure many people don't care about and can't reason about every tax change. Seriously, how many of you ever read a news about a new tax and "talked to your congress representative"? All these are just giant waste of time to majority of the population in the country.
> there is nothing my version of the filing can change.
The IRS can say "this is not a valid business expense." You can say "it clearly is a valid business expense and should be deducted!"
The IRS can say "this is contractor income." You can say "it clearly is an down payment for subcontractors, you can see the money leaving here!"
These are two obvious problems you could have, and it doesn't even require dishonesty on the IRS' part. Maybe one of your subcontractors is trying to cheat the system and is jamming you up?
Well, you've flagged the point. These people, about 10% of the population, that own small businesses are in the minority. They're likely to be an explicit disadvantage in this system. This is a segment that you probably want to use tax policy to protect, not harm.
Further.. it feels like the goalposts have moved on this since it last came up. I don't need the IRS to do my taxes for me, I just need to be able to login to the IRS, pick a form, fill it, and submit it.
E-filing should be free and available to everyone. If you have that, I'm not sure what the value of having it prefilled for me is. In particular, if you just have a single W2 to work from, there could be a 1040-SUPER-EZ where you just enter a serial number from your W2, have it fill from that, and then submit.
You can make this easy without putting everyone under the thumb of the IRS.
Why would they be at a disadvantage? As a small business don't you keep your business accounts separate to your personal accounts, and have an accountant to at least audit them each year before submission?
> what difference does it make to fix it vs making it all on their own?
That sounds like a big difference to me. The former would require government knowledge of every single transaction you make/receive, while the latter does not.
It isn't. Most people only pay tax on their income, which is already sent to the IRS. Just pre-file it and ask the payee to approve it. If you have more complicated taxes, you can just decline the pre-filed and file your own, like you already do.
> Seriously, how many of you ever read a news about a new tax and "talked to your congress representative"?
You and I don't do that, but rich people and companies do, if a tax increase is going to impact you and I by $100 it's barely worth the email that will be ignored. If a company is going to be hit by $100m, then it's well worth spending $1m to carve out an exception.
> All these are just giant waste of time to majority of the population in the country.
It works too. Tax return day is ingrained in the American Psyche through cultural output (TV), there is a constant undertone in the US that taxes are bad and the government is stealing your money.
Get rid of tax day and make 70% of the country not have to worry about it other than a line on their payslip and as well as making things far more efficient for both the taxpayer and the government (thus reducing government spending), it changes that cultural balance. Few will care about taxes, and that means the pressure to introduce a 0.1 cent drop in tax (which is structured to benefit someone on $150k by say $2 a week, but benefits people like the Koch Brothers by $200k a week) goes away.
This is such a load of horsecrap. If you need to file deductions then you do that, the government just pre-fills everything they already know. If you want to hire an accountant to be creative with your exceptions you can still do that.
In the UK the vast majority of national tax take is either baked into the price of goods (things like VAT, alcohol, petrol taxes) or taken off by your employer.
Each month I get a payslip saying I've earned £xxxx and £yyyy has been taken in various taxes and other deductions (from pension to [optional] healthcare, some of which comes off pre tax, some post tax), and the balance is transferred into my nominated bank account each month.
At the end of the year I get a summary from my employer called a P60, which shows how much tax I've paid.
If I have complex needs I then have 9 months to go to a gov.uk website, fill in that data, and either get a rebate or a bill. If it's a bill then they adjust my tax code (which defines the deductions) the next year it takes about 10 minutes (or I can just pay straight away), if it's a rebate they pay it direct to my account (or they can adjust next years deductions)
For self employed people then, but you likely have an accountant who handles everything, and pay yourself via dividends, making large enough tax savings to easily pay accountant fees (which for a small business is pretty low)
I don't consider tax a burden, I consider it the cost of living in a western society. I don't have to pay them - I could move to Svalbard or a country that would take me and pay taxes in that country. Even Americans can do this (and get rid of their US citizenship - saying "no I don't want the benefits of American society")
This is a point that I return to often—on so many issues, Americans feel compelled to argue using speculation informed by their particular ideologies, when there is no need to speculate. We can just observe the effects of various policies around the world, assuming of course that we are somewhat curious and willing to be proven wrong by reality.
I've done my taxes by hand - pencil and paper (not even a calculator), and it was faster than filling in all the forms for the online tax software. I still use the software, because the last time I did things my hand I didn't transfer line 17a of form 2345b to line 28c of form 9876d and when that was caught it was a big hassle to correct (even though the IRS had the right numbers I still had to fill out an amended return and then send new forms to the state - the state of course had the right numbers too if they could be bothered to double check)
There is another good talking point: "You already pay the IRS to do your taxes each year. That is how we know if the forms you submit us are correct. You shouldn't have to pay twice!"
Yeah really taxes could be much easier if you only had to submit what they don't already have. E.g. various deductions, non-W2 income, etc. They could then prep the final return and make it available for you to review and approve.
All my problems with taxes over the years have amounted to similar mistakes - forgetting to transfer one amount from one form to another, or transposing numbers, etc.
IMO there are basically two types of tax filers in the US:
1. People who really should file with pencil and paper (or excel, at most)
2. People who need an accountant
Very few people fall in between these categories. The tax code is so complicated and annoying that even things like employer RSUs, mortgages, side hustles, and doing more than 20 stock trades in a year can be risky and weird.
> but they always get quietly sidelined by tax industry lobbyists.
Turbo tax has spent 44 million dollars on lobbying.
The American Medical Association(Physicians) have spent 500 million dollars on lobbying. (All of medical spent about 2 billion)
Its good that people are angry that lobbyists control the nation, but for some reason we give the biggest lobbyists a pass. I don't see the outrage against the top 20 lobbyists, I do (rightly) see it against turbotax.
The medical industry is squarely in the crosshairs of "most broken and fucked up industry in the country" pretty much constantly. I agree that we often don't consider all sorts of other lobbying, but "our medical industry is broken because of corporations" is a pretty uncontroversial statement in the US.
> The medical industry is squarely in the crosshairs of "most broken and fucked up industry in the country" pretty much constantly.
The problem is that you speak for others when they hold the opposing view - our medical industry is evidence of the free market working at its best, and providing care for dollars with no hidden or extraneous fees.
I’d love to see a thorough breakdown of what that opposing stance is. How is medicine, a service that is non-negotiable (e.g. you can die without it) in a position to work without problems in a completely free market? I’m any free market, you vote with your wallet, but that’s impossible if you don’t have time to switch providers or if forces outside of the free market dictate price?
I’d love for us to just say “let the market sort it out”, but that generally requires presumptions that aren’t universally true for all goods or services.
Where are these people? While the bulk of democrats and republicans disagree on what the route evils of the medical industry actually are, they largely agree that it is broken. The republicans, for example, complain to high heaven that the ACA has eliminated the free market within the medical industry and replaced it with regulation and rot.
> The problem is that you speak for others when they hold the opposing view - our medical industry is evidence of the free market working at its best, and providing care for dollars with no hidden or extraneous fees.
Who are these unicorns which are not paid by this system?
Are they friends with Yeti, Bigfoot, and the mythical hot single living in my area?
The medical industry is something like 20% of the economy. That’s not the case for the tax prep industry. Their lobbying is outsized, and able to be more narrowly focused on the couple things they really care about.
The broader medical industry is something like 1/5 of the American economy. It had over 2.5 trillion dollars in revenue this year. Intuits annual revenue was 5.6 billion, so it directs 10x as much revenue, relatively speaking, at lobbying.
The real issue is that the tax industry is a large employer. There are about 80k full time tax preparers in the US, and several times that are hired seasonally. H&R block alone hires about 80k for Jan->April. The lobbyists only have to go into senator's offices and say "We created 14,000 jobs in your district, and this bill puts those in jeopardy". Our tax payment system is, in part, a taxpayer funded private jobs creation program.
The US tax code is longer than the C++ standard if you count only the laws that are active today. If you add on the rulings in IRS tribunals, clarifying papers, and other publications, the US tax code is something like 100,000 pages. It is easy to see a profession being established around learning to read that sort of thing.
The solution to the tax prep industry isn't to have the IRS do your taxes for you, it's to reduce the size of the tax code.
With how US govt uses tax (instead of other adhoc channels) to interact with citizens, let's be honest, reducing the size of the tax code is the least likely event to happen. It would require a complete change of paradigm in how the govt works to make it happen.
Nobody is incentivized to reduce the number of laws on the books, but I would vote for any politician whose position was "I will only repeal laws."
The US government is obsessed with giving narrowly-targeted groups of people money through the most obtuse mechanism possible, and it is ridiculous. If you were just sent a check when you bought an EV (for example), a lot of the tax stuff would be much simpler.
Yet another reason I wish the US were a real democracy. For all the good that checks and balances do, let's not forget that the founders were trying to entrench the power of their class.
Yes because having a Twitter mob rule the US would be such a great improvement../s
I know there were issues that precipitated the direct election of Senators but I think we would be better if we went back to State Senate control of the Senate, that would force people to focus more on their state and local politics where they have more power rather than ignoring them and shouting how the US Senate is doing nothing.
Hmm, probably depends on what you define as a lobbyist. If you're writing a bill about education reform and including more tech in the classroom (just a hypothetical example) and ask the teacher's union, Brookings, and a major education company about what would be important to include or not include, would that be influenced by a lobbyist group?
Why legislate any of it? Just charge all 300+ million of US with tax evasion and allow everyone to enter a plea of no contest. The fine for this treachery can be to pay the exact amount of taxes I owe. No need for any laws to be changed anywhere. We can enter our plea via zoom call.
> The challenge is that you personally need to report additional information for things like capital gains tax on asset sales, any credits/deductions you wish to claim, and changes in your living arrangements or life status.
Two things:
1. A lot of asset sales should be or are reported by financial institutions, so in the case of me selling stock through Schwab or whatever, it should still be handle-able by the IRS.
2. Okay yes, it's reasonable for me to put in my living status changes or tax deductions I want to claim, but they don't ask just for that, they ask for all the other shit too, all the stuff they already know the answer to. Why?
> A lot of asset sales should be or are reported by financial institutions, so in the case of me selling stock through Schwab or whatever, it should still be handle-able by the IRS.
Your financial institution doesn't necessarily know your capital gains. It reports stock sales to the IRS, but often doesn't report the cost basis because it doesn't know. Consider:
You buy 50 shares of ABC on Jan 1 2020. Then you buy 50 more shares on Jan 1 2022. Now you sell 50 shares of ABC on Jul 1 2022. Which bunch of shares did you sell? Was it a short term gain or a long term gain? Was it a loss? It depends. Neither your broker or IRS knows the answer, but you do.
EDIT: The above information is evidently out of date by about 10 years. TIL
> Which bunch of shares did you sell? Was it a short term gain or a long term gain? Was it a loss? It depends. Neither your broker or IRS knows the answer, but you do.
Your broker does know because you need to tell them which ones to sell when you sold.
The IRS also knows because that's included in the cost basis reported to them by the broker. (This changed some number of years ago, brokers used to only report the income from the sale but not the cost.)
I should add to this, even though the broker reports the cost basis, be proactive in verifying that it is correct.
For reasons I can't comprehend, ETrade reports the costs basis wrong every single year on all my RSU and ESPP sold shares. They do issue a supplemental report which has all the correct info, but the 1099-B has it wrong. It is maddening. I need to send both the 1099 and the supplemental doc to my CPA so things are accounted correctly, otherwise I'd pay a lot more taxes due to ETrade errors.
...and therefore there is even less reason for the IRS to not pre-fill forms or just have an exception-based filing system vs everyone has to file regardless of exceptions / amendments / challenges etc.
What about including the free market of tax helper systems and services? You'll be wiping out an entire industry - doesn't seem very conservative to me.
I've only been trading stocks since 2005ish, but all the brokers I've dealt with have had ways to tell them which shares I was selling. And if I didn't pick them, they'd pick for me. Nowadays, they're required to track cost basis for regular shares. Even if you have shares where they won't report a cost basis, you're supposed to tell them which shares you're selling before the transaction settles.
Employment compensation related shares get weird, but they will at least track the purchase date or the date it entered their system anyway.
In recent years by law the brokerage company tracks the lots you buy and when you sell you can select which to sell. The gains are reported accordingly on the forms the brokerage company sends at the end of the year.
Things get more complicated when you are trading the same security across different brokers because they can’t detect wash sales. The IRS has the information to detect was sales.
Still true for cryptocurrency, and still true that you have latitude over whether to do it as FIFO vs LIFO vs specific lots.
Edit: To pre-empt some replies: yes, centralized exchanges will report sales but they won't always know your cost basis, and a lot of the trades will happen on-chain, which definitely isn't automatically reported.
To be clear, I support the IRS doing as much as the filing as possible, and I agree these issues aren't dealbreakers, but please don't make the situation look different than it really is.
In the theoretical new system, you could have an option to file additional elections or changes. The IRS would have a default that you could then vary if you chose.
> you personally need to report additional information for things like capital gains tax on asset sales
This part annoys me; when I would have RSU's vest, my broker would send me a 1095B(?) which plainly lists stock price at time of acquire and time of sale, and the gains, which for RSU's sold at time of vesting is 0
but for some reason I don't understand, they don't report the cost basis to the IRS, just the sale and price at time of acquire, so if you don't file your taxes to fill in that cost basis information, the IRS will cite you as having earned the entire sell cost of the stock!
This fucks up a lot of people new to tech/taxes, and I still haven't been able to find documentation on why they don't file the cost basis for you if they're reporting the sale anyway.
Also, it sounds like brokers are somewhat to blame, because they made comments to the IRS opposing additional reporting for stock compensation:
> ... commenters asked that there be no change to the Form 1099-B to reflect compensation status or, alternatively, that using the indicator be permitted, but not required. These commenters indicated that compensation information is not accessible to most brokers, and extensive reprogramming for both the underlying database and the reporting process would be required. The commenters also expressed concerns that, in many situations, a broker would have to accept customer-provided information in order to track the compensation-related status.
> The lack of a mechanism to communicate whether the basis of stock has been adjusted for the exercise of a compensatory option coupled with a system involving discretionary broker adjustments for compensatory options would, however, be unworkable.
> A broker may not increase initial basis for income recognized upon the exercise of a compensatory option or the vesting or exercise of other equity-based compensation arrangements, granted or acquired on or after January 1, 2014.
The broker didn't report the cost basis to the IRS because they don't have to. They only have to do this for "covered securities" [1], which include stocks you buy with cash, but don't include stocks you acquire as employee compensation.
The IRS system that generates CP-2000 letters has screwed up majorly every year that I have filed in the last 3 years. The IRS received 1099s in each year that my wife and I did not remember having issued for us, all for less than $5.
What is crazy about the system is that every one of those years, I have been asked to pay the same amount of money (roughly $2000 extra), but the mistakes change each time. Each time, I have sent a very kind letter to the IRS telling them, "no, I did this correctly," and the IRS agreed. It failed to account for cost basis on RSUs from an employer. It failed to account for long-dated options expiring worthless. It failed to account for long term capital gains being long term.
It's hard to avoid drawing the cynical conclusion here, that the IRS each time attempts to extract a payment that is slightly less than the cost of having a lawyer or accountant deal with them. I don't want this kind of system sending out a tax bill to me that I have to contest, because:
1. It will almost certainly not do the accounting that minimizes each person's burden. The US tax code is long and full of terrors.
2. Most people will just accept the result, regardless of the fact that it will cost them thousands in extra taxation.
3. People that don't accept the result will likely be flagged for future audits, and will likely face a lot more scrutiny. In the previous system where everyone has to file, there are a lot more targets.
This is an utterly self-serving rationale, but I don't want this system.
What we need is an open, automated, auditable system where the rules are transparent. The IRS is not there to cheat you out of money, they have no incentive to do so (they don't get bonuses for that.)
On the other hand, with our present adversarial system there are a variety of private businesses that do get money when the IRS makes mistakes.
I used to think that the IRS was not trying to cheat you out of money, and the individual employees are usually great if you return their calls and treat them with the minimum level of respect that they deserve. However, the systems at the IRS are designed to maximize revenue.
The adversarial process that exists today (between you and the IRS's automated systems and processes, mediated by the humans at the IRS) allows you to generally get the benefit of being on the side that minimizes your tax burden. Usually, the more complicated your tax filing is, the more gray there is, and the more advantage you can take of it.
Even if the IRS doesn't know, for most people the difference between the right answer and the answer the IRS has despite missing some data isn't enough for either to worry about. My bank reports my stock trades, my company reports income. My state already collects mortgage information so it wouldn't be hard to send that on. Sure I could build a widget in my garage and not report taxes, but either I'm doing so little of this that it not worth the IRS's time, or I really need to become a real business and get an accountant to report this while dealing with the other complexities of finance.
This has always been my viewpoint. It doesn't have to be perfect, nothing is. Everyone already "cheats" on their taxes by not reporting things like gifts which never reach the limits anyways. Or servers who take cash tips and don't report. We don't care about these things because they are so low value and honestly might be better for the economy if ignored.
And as far as I see it, everything the Fed needs to file my taxes is information that the Fed already has. I'm pretty sure this is an extremely common circumstance.
I also don't understand why states don't push for return free filing. They can demonstrate it working without the need for the Fed to take action, which in turn would put pressure on the Fed.
Aren't capital gains already reported from your bank? If not, it should be trivial to have them since they send the exact same information to me. The same goes for loans.
Honestly I wouldn't be surprised if the IRS could already have a 90+% success rate for 80+% of people. It seems like the real issues would be in the very rich who can take advantage of many loopholes or the average person when big life events happen (things like death, marriage, and birth, though most of this could be automatically reported as well but easier to fall through the gaps).
Maybe I misunderstand, but it doesn't seem like the IRS needs any additional information than I have presumed it already has. This information is at least all known by the fed, so it doesn't seem like a data leakage. And I'm someone that highly cares about privacy.
I suspect that the real pushback for return free filing is from 1) tax filers like Turbo Tax who would lose a lot of business and 2) the ultra wealthy as RTF would put pressure to simplify the tax code and reduce the number of loopholes.
Your bank will report interest via the 1099-INT, and they will do this if you make more than $10 per year. You will also get a form if you redeemed any government bonds. I'm not deeply familiar with AML/KYC, but transactions over $10,000 are reported to the government, but not necessarily to the IRS and definitely not as a taxable event.
Let's say you sold your car and deposited the money in your account. The IRS won't have details about the sale and neither will your bank. They will know the amount, but it is incumbent on you to report information if this sale represented a capital gain. In all likelihood it wasn't, but the government doesn't have a way of knowing this. If you get audited, someone will probably ask where the money came from and it would be up to you to furnish receipts in order to prove it.
Honestly, I don't see a problem with this. Like every other country, they send you a bill. You either correct the mistake they have or pay a fine. Still easier and cheaper than paying TurboTax.
What percent of Americans buy and sell a property within a year? I bet it is pretty low.
> stocks
All the major players report this information.
> ETFs, crypto
The vast majority of people use exchanges like Coinbase and Binance. These already report.
So I'm not sure what your point really is. That there are edge cases? No shit. No one is even arguing against that. The argument for return free filing is that the vast majority of people will benefit from the system. Even if there are mistakes it is easier to look over something and correct it than do everything from scratch. The people that won't majorly benefit from this likely already have more than enough wealth to pay someone to do their taxes already and honestly I'm not concerned about them.
Don't let perfection get in the way of massive improvement.
You pay capital gains on any property sale where you earn income unless you reinvest the money in another property or use the one-time exemption. I don't know why you think the sale being within a year or not makes any difference. The major players know when you sell the stock and for how much, but they don't know the cost basis. The sale could be LIFO or FIFO and you might have transferred the stock into the brokerage without them ever knowing the purchase price. These are not edge cases.
Sorry, I looked at a bad source. But looks like so did you. Here's Investopedia:
> You can sell your primary residence and be exempt from capital gains taxes on the first $250,000 if you are single and $500,000 if married filing jointly. (once every 2 years)
> You can add your cost basis and costs of any improvements that you made to the home to the $250,000 if single or $500,000 if married filing jointly.
So I'll change my question:
What percentage of home owners are profiting >$250k (single)/ >$500k (married)? What percent of them do that more frequently than a 2 year period?
I'm willing to bet that these numbers are still very low. That's the entire point. I'm sure there's nuance I've missed as I'm not an expert. But my entire point isn't about specifics, it is that your argument against this system is about edge cases. If you can prove that these aren't edge cases, I'll actually side with you. If not, I still see return free filing as an extremely beneficiary policy to the vast majority of Americans, and especially to those with the least income. I already know that 90% of households take the standard deduction, so you're going to have to make some substantial claims.
It's straightforward to calculate real estate capital gains from reported information. Remember, real estate transactions (including sales prices) are public records.
> The Tax Reform Act of 1986 required anyone responsible for closing a real estate transaction, which may include the escrow agent, title company, or attorney, to report a real estate sale or exchange to the IRS on Form 1099-S. In addition, they were required to furnish a statement to the seller of the gross proceeds of the sale. In 1998, with the passage of the Tax Payer Relief Act of 1997, an exception to this reporting requirement was allowed.
> If the sale price of your residence is $250,000 or less ($500,000 or less for married sellers) and you have lived in the property, as your principal residence, for the last two out of the last five years, your closing agent will not be required to file Form 1099-S with the IRS. The gross proceeds of the sale need not be reported to the IRS if these conditions are met.
> Be sure that your closing agent has your written confirmation that your sale is exempt from the IRS reporting rule. Most closing agents have a form, called a “Certification for No Information Reporting on the Sale or Exchange of a Principal Residence” which you will you be asked to sign at closing. The form will ask for your seller information, social security number, address, and certification that you have met the exemption requirements.
Here's how it should work! The IRS has a page, you can go look at it and say "eh ok" or you can click further and do whatever you think is important to update.
And the tax companies can offer to do that "click further" for you, and you then would see how much they saved you (if any at all). Heck, make it so the IRS always charges a "I dun wanna read anything" fee of $50 that you can get out of by clicking "uh no" like the presidential one. That would satisfy most people, heh.
Complex scenarios can still be handled by hand if the taxpayer wants.
Behind the scenes, the IRS already has a well informed idea of how much you owe, based on the information submitted to them by your employer and a few select third parties - such as your bank or broker.
I will corroborate, as I've posted elsewhere in this thread. I've had to interact with IRS employees, and they basically have all the information in their computer system. For simple returns, they could tell you the entire contents of it!
Yes. But if you make a mistake and don't report something the IRS already knows about rhen you lose, and there's a penalty on top of that.
It shouldn't have to be a game. There shouldn't be fear and antagonism. The current system favors the IRS. It favors other third-parties. And it's devoid of any favor for the taxpayers.
>The challenge is that you personally need to report additional information for things like capital gains tax on asset sales, any credits/deductions you wish to claim, and changes in your living arrangements or life status.
But that's exactly what the parent comment was saying: you'd get a notice from the IRS that says they think you owe $X based on their records. You have until the filing deadline to file any additional income/exemptions/deductions/challenges/etc.
As you say, for the vast majority of people this would make taxes a million times easier. For people with more complex situations, they can then engage in the more complex process of additional filings.
There are much bigger problems currently. For example, if you receive RSUs and don't sell some manually at vesting, you might end up in debt by being forced to take loans to pay your taxes.
> The challenge is that you personally need to report additional information for things like capital gains tax on asset sales, any credits/deductions you wish to claim, and changes in your living arrangements or life status.
One could argue that a basic principle of liberalism ought to be that if the government wants to tax you they should be responsible for calculating how much you owe according to the law. Or in other words, for every dollar the government doesn't demonstrate that you legally owe, you should not owe that dollar. Kinda like presumption of innocence, but for taxes.
One thing I don't understand is, sure in the US, lawmakers are all bought off, but do we have the same shit system here in Canada? Why are Canadian politicians helping some shitty American company get rich off Canadians? Why can't we have that system up here?
We have the same shitty system for the exact same reasons the US has their shitty system.
1) the best way to get elected is to promise people things with their own money. This creates more and more programs the government needs to fund and therefor ever more tax dollars are needed.
2) Rich people can hire lawyers and lobby their politicians. This allows them to make favourable changes to the tax code increasing its complexity. When has the tax code ever been reduced?
3) The government abuses the tax code as well. Instead of being a tool to generate revenue to pay expenses it does all sorts of "social" work as well. want your citizens to get married, change the tax code, want your citizens to buy houses, tax code... Move to the NWT, tax code.
Every time the idea of a "flat tax" comes up those who benefit from the complexity freak out. A flat tax would remove the ever-increasing complexity and loopholes so the rich protest, the government cant abuse it so they protest, Revenue canada would be cut in 1/4 so they protest...
It just occurred to me, there may be a reason they don't tell you that I hadn't considered before. If they tell you exactly what income they do know about, then they're implicitly providing information about your income they don't know about. This might make people with harder to trace income less likely to pay taxes on it, as they have some upfront assurance that they won't get in trouble. In some ways it could be seen analogous to a common rule of negotiating, which is to get the other party to say a number first. This allows the IRS to prevent lowballing the tax number, and if the person comes in with a low number, they can still "negotiate" it up.
I don't know, just a theory. I still think the whole complicated process is stupid and they should just give you a number at the end of the year.
I think overall the IRS not providing the information is driven more by tax preparer lobbyists and anti-tax crusaders (like Grover Norquist). The tax preparers want the revenue and the crusaders want people to be irritated by the process.
I did have basically the same thought as you, that not showing you the info means you're tempted to hide it. However, even if somebody is late reporting the info to the IRS, you're still liable. And the opportunity to hide income is gradually being reduced: eBay is sending 1099s [0] if you sell enough there, so is Amazon [1] and even Facebook Marketplace [2] for sales through them (as opposed to meeting in person and using cash).
If people use Venmo or Zelle, that's trackable. Maybe the IRS isn't using it today but some day.
That sounds great, except I'm not buying a car. When I buy a car, the guy obviously has an incentive to hide the actual price. Rather ironically, the government of the state I live in mandates this "dealer" practice.
But the IRS is the government. It isn't here to make money. They aren't supposed to be working against the citizens.
I paid taxes in France and Hong Kong. The French taxes are taken at source from your salary and you touch them up. In Hong Kong, it's a simple form, and they trust you.
France is only 70M people and HK makes a tax profit every year with 8M people, sure. We re not the strong and beautiful United States, but if us shithole countries can tell people an estimate they can touch up, the US can as well Im sure.
I thought before that the US was some sort of capital friendly country until I made a franco american friend who had to pay taxes there and Hong Kong. He had a guy hired and it seemed a complete nightmare. He worked as a low level programmer there for 3 years 15 years ago and nothing else. Still needs an accountant to do his taxes :s
>We re not the strong and beautiful United States, but if us shithole countries can tell people an estimate they can touch up, the US can as well Im sure.
you may have HN confused for reddit, you'll find very little american patriotism here
Interestingly, this is what Congress legislated in 1998 only to be beaten back by lobbying from the tax preparation industry:
The Free File Alliance came to be because Congress originally mandated the IRS to do away with tax returns altogether in a law called the Internal Revenue Service Restructuring and Reform Act of 1998. After a major lobbying push by the tax preparation industry, the Free File Alliance was introduced as a way to let low-income Americans file their taxes for free without getting rid of tax returns. The Alliance drew institutional momentum away from the change to return-free filing, which likely would have rendered large segments of the tax prep industry totally useless.
> There's no reason the government couldn't just tell me how much money they took each year and give me a chance to contest it if I thought it was wrong.
That's not how it works, though. You're telling the government how much you own and how much you paid. They do have a good estimate, and often that estimate is probably correct. However, there are cases when that estimate isn't correct.
However, there are cases when that estimate isn't correct.
Which isn't actually an issue. I moved from the US to Norway some years ago. Once a year, the government sends a letter (to a secure digital mailbox) and has me go online to check my tax return. If I do nothing, they'll just send me any refund I'm owed (or expect my payment by the due date). If there is an error of any sort or I need to do something to it, I have that option.
Many if not most people don't need to do anything, which saves money since there are less tax returns for humans to deal with. I'm guessing there are more resources available for other types collection efforts.
Banks are obligated to report the holdings you own, brokers are obligated to report both what you own and any gains/losses you have endured over the year, land and home ownership is also reported, many deductibles are reported (f.ex. daycare is a deductible and that is automatically reported). Basically most things are reported automatically and if there's anything else, like a long commute (which for some unknown reason is deductible), there is a simple form on the web site you can fill.
Details aren't going away because tax policy is used to incentivize or disincentivize activities. Mandate reporting for what you can, provide an exception process when that isn't feasible. A majority of citizens can have their taxes done for them by the IRS, so do so.
This is a non-issue. Of course the government won't know everything for everyone. That is the reason you get the chance to make changes to your return. And even then, it'll still be a little easier than doing the same return in the US.
Even with a system of "not so many details", a few things are simply going to slip through the cracks but this isn't going to affect most people.
Sure. The IRS obviously isn't doing this for everybody. But what percentage of the population do you think has crypto gains, overseas earnings, or business expenses each year?
I pay something like $120 to TurboTax annually to file federal taxes and taxes for two states. I've got a W2 from my job, dividends and gains/losses from equity sales from my brokerage, 1099-Rs for my IRA and 401k, a 5498 for my HSA, and a bunch of deductions for charitable giving, which I perform through my DAF. Every single one of these forms is submitted to the government with complete information needed to compute my tax burden, except for the cost basis of my RSUs which is against some idiotic law to report to the IRS. Fix that, and the IRS can send me a bill. What percentage of the population do you think has more complex taxes than me?
If you don't file your tax return, the government will calculate it for you, send you a bill and a document showing how they got there, as well as a list of all the forms they have, and then you either agree with them and pay, or contest it by filing your return.
If all your income is from a job or investments that have a 1099 and you only take the standard deduction, the government already knows exactly what you owe. The only thing they don't know is business income/loss and donations.
For most taxpayers the government could calculate your tax bill without any involvement from you.
Oh you sweet summer child. How I wish that were true.
People hate the police but for some reason think ladder climbing IRS agents are fair and rational. They aren’t. They’re bloodthirsty thugs who will make your life a living hell.
If you don’t believe that to be true then consider yourself very, very fortunate.
>People hate the police but for some reason think ladder climbing IRS agents are fair and rational. They aren’t. They’re bloodthirsty thugs who will make your life a living hell.
>If you don’t believe that to be true then consider yourself very, very fortunate.
Only if you're Al Capone[0] or similar.
I had an IRS agent come to my home. He knocked on my door and was quite polite. I didn't invite him in, but made an appointment to go to his office a week or so later.
The IRS claimed I owed a six figure sum (which was ridiculous, but whatever), and within a month or so, I filed the five years worth of tax returns which I'd ignored.
Guess what I got? A prison sentence? Nope. A big fine? Nope. A small fine? Nope. A refund.
This sub-thread contains statements such as "Nobody goes to prison over tax errors unless it's deliberate fraud" and "Only if you're Al Capone[0] or similar". It is my personal opinion that those statements are roughly equivalent to "if you're not guilty then you have nothing to hide". You may or may not agree with that comparison, that's fine.
The idea that the IRS only prosecutes and wins convictions against the guilty is naive and foolish based on my lived experiences. Other people have had other experiences. They are fortunate and privileged.
The difference in opinion between the police and IRS is interesting. Police are not popular these days. Some people even believe All Cops Are Bastards. I would encourage people to extend whatever opinion they hold on the police, prosecutors, and the judicial system to cover IRS agents as well.
>This sub-thread contains statements such as "Nobody goes to prison over tax errors unless it's deliberate fraud" and "Only if you're Al Capone[0] or similar". It is my personal opinion that those statements are roughly equivalent to "if you're not guilty then you have nothing to hide". You may or may not agree with that comparison, that's fine.
Since I'm the one that mentioned Al Capone, my point wasn't that. At all.
Rather, that at least AFAICT, IRS agents mostly have the accountant/used car salesman vibe rather than an AR-15 wielding SWAT team member ready to to beat you with their Shillelagh if you mouth off.
>The idea that the IRS only prosecutes and wins convictions against the guilty is naive and foolish based on my lived experiences. Other people have had other experiences. They are fortunate and privileged.
I can't speak for anyone else, but I never said anything even approaching that.
While the IRS does have a Criminal Investigations[1] department, IRS agents are not law enforcement. They do not have the power of arrest, nor can their actions result in jail.
>The difference in opinion between the police and IRS is interesting. Police are not popular these days. Some people even believe All Cops Are Bastards. I would encourage people to extend whatever opinion they hold on the police, prosecutors, and the judicial system to cover IRS agents as well.
I'm old. When I was young, there were many street gangs in my home town and the police were just considered the biggest and best armed gang.
Over the past 40 years, some changes for the better have been made, but not enough to disabuse me of that notion WRT police.
As far as IRS agents are concerned, they are a whole different animal. They are not police. They do not arrest people. They do not handcuff people and "rough them up."
What they do is attempt to collect unpaid taxes. Whether they do that fairly is probably a crap shoot, like most civil servants who deal with the public.
The IRS has broad powers to attach/seize assets in recovering unpaid taxes, but revenue agents are (at least AFAIK) paper pushers and not jack-booted paramilitary thugs.
My experience with an IRS revenue officer was unpleasant, as action was started to attach some of my assets. Even though the "tax debt" assessed wasn't valid (as I mentioned in my initial reply[2] to you.
That said, once I addressed the issues, I was able to resolve them without issue and, not only did I not have to pay anything, I received a check from the IRS.
I'm sure my experience isn't the same as that of others, and I'm sure that IRS agents can (and do) make things quite unpleasant for some folks. But "thugs"[3] seems an inapt term.
If you don't like the police, prosecutors, judicial system and the IRS, I suggest you take appropriate action (activism, voting, etc.) to change how those institutions operate.
You certainly won't get a lot of argument from me about it, but your hyperbolic tone ("bloodthirsty thugs"? please.) seems a little shrill, IMHO.
I'm not telling you what to say, think or do, just providing my personal opinions and experiences as well as my impression of your exposition of yours.
I expect you will continue to disagree with me and that's fine. I have no special expertise or knowledge about the IRS and its revenue officers other than my own experience, so I'm sure YMMV.
I used a CPA to generate do my taxes a couple times, not because I have a whole bunch of money or complicated stuff but because I was overseas a couple years then came back and bought a house.
First time it was great, the second(and last)time they screwed up. Badly.
My wife is a foreign national, not a US citizen and no plans to be one. At the time she did not have SSN. For the first filing, the CPA put her down and did not put down a SSN. The last time they put down a SSN, a random one from someone in NJ(How do I know this, my state revenue gave me all the persons details when I contacted them. Yes, that incompetent), I live in the south.
I noticed the issue when I was reviewing my paperwork after I got it back. Since I was filing via post, I crossed out the wrong number and wrote in a note.
3 weeks later I get a check from the state issued to my wife and I, listing the incorrect SSN for her. I call them up and spend several hours trying to contact them(call and no answer, call an hour before close and get closed message, call 30 minutes after open and get closed message) and then a couple hours on the phone where they admit that the paper work was corrected, they see that I corrected and then they want and used the wrong data anyway because...stupidity or something.
The solution is to send the check back to one address and resubmit paperwork to another address.
The IRS has not yet issued me anything, I call them to alert them of the issue and make sure I don't have to go through the same deal. I call and get through on the first try, I inform the agent of what happened and what I did to the paperwork. They pulled up a scan and told me they saw what I was talking about, that it would be no issue and I could relax and have a great day and recommended I don't use that CPA again in the future.
For all the hate and horror I hear about the IRS, I don't see anyone substantiate it. All this going on about bloodthirsty thugs just seems to be trying to "other" a group of people.
Maybe another story is appropriate here too:
I have two brothers who just imported a small gas powered excavator from China bought off of Alibaba.
In order to import such equipment, the engine must be certified for use in the US by the EPA. The document filing is rather strict, not good faith and refile + pay interest like how the IRS works. $15,000 in penalties and possible jail time if you make a mistake kinda strict.
I told them they needed to make sure the equipment was cleared for import as I have to work with the EPA on emissions certification sometimes.
The manufacturer assured them it was, they paid the down payment and wait for it to arrive. 3 days before the ship docks, they get a call from the cargo broker asking them for the EPA documentation. If they can't provide it by the time the ship docks, choices are: Get documents showing engine is certified, send to Customs bonded warehouse(high cost per day) and possibly rework/remove engine or abandon/dispose of cargo.
In attempting to get the certificate from the manufacturer, they contacted the EPA several times to make sure the information they were getting would match what was required. The older brother did the initial calling of the EPA.
OB: "Fucking EPA, they are trying to get me to make a mistake so they can screw me over and fine me"
The younger brother then called the EPA to get a better understanding and clarify what was relayed to him by the older.
B: "The EPA isn't to bad, you ask them questions nicely and they respond. They even gave me some good advice on where I might be able to find some of the documents."
The only difference between the two is how they approached the government agent and their attitude and manner of asking questions.
My advice, if it seems like there are a bunch of people trying to screw you over using regulations, it might be the manner and way you are approaching the situation.
For the majority of Americans, they know… Most Americans don’t have passive income streams or investment income. Most Americans, for a given year, don’t have a change in living scenario (marriage, kids, etc). The majority of tax filers take the standard deduction.
Not always. I used taxAct last year to file, as I always do. I paid what I was told I owe by the software. I just received a tax refund in the mail. Just a check with a memo reading "tax refund", no explanation.
Further, that would be true anywhere, since no system is immune to tax fraud or improper communication.
There are lots of warnings before you get audited. You usually get several letters and then are told "preserve your documents, we may be coming." Then they send you an email or give you a phone call. Then, if you don't respond, they show up irate at your door.
I thought Japanese government services were famously difficult for foreigners to navigate? Is this assumption wrong or is it just very effective for Japanese Citizens only?
>as a foreigner, your place of work takes care of your taxes for you.
My understanding is that isn't just the case for foreigners, it's the case for everyone. Companies are expected to just take care of things like that for you, and in return you're expected to treat them with utmost loyalty. I imagine things have changed somewhat in the past decade, but this writeup is illuminating:
Tax agency is known for kindness for locals (I don't know for foreigners) unlike other gov services. It earns money unlike other gov services so it could be the reason.
> If you need the government to behave against the best interest of the people in order for your industry to exist maybe your industry shouldn't exist.
There was a "check cashing" store next to our DMV that solely existed to service people who visited the DMV. Our own government was unable to accept US tender.
This exists all over the place. The amount of servicing and companies that exist basically because of the government is insane.
There seems to be some misunderstanding about what checks are, because this is absolutely not a matter of the government "not accepting legal tender". Checks are not issued by the government, nor are they backed by a guarantee of cash. They are issued by private companies, and are merely backed by a private company's promise of cash.
And sure: it feels ridiculous that checks aren't accepted, but the reason they're not accepted is because they're not legal tender. Nor are they even cash-equivalent. They're only cash-equivalent by the (sure, contractually regulated but still entirely the) grace of the private issuer, and only for as long as that private issuer remains in business.
I've always heard them called 'check cashing' places. They essentially provide banking services for the unbanked populace. Pay your bills, get checks cashed, get checks made, etc.
IIRC, the US Coast Guard cannot provide gas to stranded boats that simply ran out of fuel because they were sued by companies that provide that service.
Do you have a reference or citation for this? I looked for the case, but couldn't turn anything up. It seems extraordinary, especially because the federal government would seemingly have sovereign immunity from such a lawsuit, unless it was somehow a taking.
It was told to me by a coast guard helicopter pilot that I grew up with. Not one prone to exaggeration. I've also heard from boaters that it is kind of general knowledge to say that you are having an emergency vs out of gas if find yourself stranded.
Edit: Here is the best I can find. It sounds like it was a congressional mandate from 1983:
This is also one of the things I miss the most, bureaucracy wise, having moved to the US from Spain.
Back in Spain, they just send you a draft that you sign off on, or update if needed. In my first three years in the US, I went to a tax specialist to get my taxes done because I couldn't figure out how to get them right.
My anecdotal experience in Germany is that it's well worth the hour or so to fill out a tax return with some common deductions. The downside of optional filing is that many people will lose money to laziness or ignorance.
I bet I've spent more time discussing taxes on HN than actually doing my taxes in the U.S. It really isn't that big of a thought, and I have a small business so it's even more complicated.
I live in the UK and we have a similar system here. I have a tax code assigned that describes my personal circumstances. My employer reports everything to the government. Taxes, refunds, etc, are all handled automatically through my paycheques. The only reason I would need to file a self assessment is if I had self employment income etc.
It’s such a relief of stress every year. I hate the way the US (and Canada) does taxes.
There's no reason the government couldn't just tell me how much money they took each year and give me a chance to contest it if I thought it was wrong.
Literally true! I've had to interact with IRS employees, and as far as I could tell, they basically had what amounted to what my tax return should be on some kind of computer screen right in front of them. This was back in 2015 or so!
You're probably better off filing every year. In countries where you just get told what your taxes are, many people don't really even know how to get deductions made, let alone know what deductions apply to them. Also, I don't think you need to use intuit or anything like that, I think you can fill out the forms yourself if you really want to avoid that kind of thing.
Many people can qualify for extra deductions and credits without itemizing. For instance, student loan interest, HSA contributions, investment losses, IRA contributions, alimony payments, tuition expenses, even charity donations can all be deducted even if you took the standard deduction.
> In countries where you just get told what your taxes are, many people don't really even know how to get deductions made
I've got some bad news. It's not just those exotic countries. There are people inside the USA that don't understand deductions either. I've lived here my whole life here and I'm in my forties now. I always just use the standard or default. I'm not exactly sure why someone would or would not want a deduction. Are my taxes optimal? Probably not. This is ok. I'd like to at least have the option of having a simpler process.
> If you need the government to behave against the best interest of the people in order for your industry to exist maybe your industry shouldn't exist.
It's exactly the same with healthcare (and health insurance) & higher education.
Few systems in the US are setup in the best interest of the people, and are instead setup for profit.
I think people overestimate the time savings with pre-filled tax forms.
I've filed taxes in countries that "auto-complete" your return. What I end up doing in that case is pulling all the forms I received, double checking all the numbers, and if they are correct, hitting "submit".
So I basically end up doing the return anyways.
That said it was much simpler - but not because the form was already filled out, but because the tax code was way simpler.
If the IRS starts auto-completing forms, people are either going to still have to "do their taxes" or just take the risk that the numbers are right.
If you had a super simple return to start with, it wasn't much work anyways.
it can be interesting to steelwoman that argument, for instance think of the vast sums of basically unnacountable money siphoned from taxpayers to kill hundreds of thousands of people during the iraq war, for instance?
it's not the worst idea to have some counterbalances to that type of spending
Unfortunately if I underpay my taxes I don't get to pick whether it comes out of the "social programs and infrastructure" bucket or the "blow up children in the Middle East" bucket.
That's how it works in Australia. Employers report earnings, banks report interest, etc. and doing your tax return is logging into the tax office's web app, looking at what's there, adding any extra income, entering any deductions, and then hitting 'Submit'. Any return is electronically transferred within 14 days (otherwise you get a bill).
Once I have the statements I need from investment funds, etc. I've never had a tax return take much more than about half an hour, and I've never paid a cent to file anything.
Behind the scenes, I think you'll find that this is a legal and liability issue. US Title 26 makes you and your agent legally responsible. If the IRS calculates your taxes for you, then they are acting as your agent and the IRS can't act as your agent of course. There's also a CYA aspect, as the government managers involved don't want to be responsible for errors and omissions.
I don't know why I have to point this out, but the government is fully capable of passing a law to resolve that particular concern. And I strongly suspect it wouldn't work that way anyway, since the government would be giving you the information that it has and asking you or your agent to confirm or correct that information.
It's a valid concern in that the government has no problem with legislating and then enforcing mutually exclusive rules. Example: driving the speed limit on some highways is actually unsafe and can get you hit with an impeding ticket, driving the safe speed gives a cop license to pull you over since you are technically speeding.
I mean sure have them send out a form, but it's naive to expect the correction rate to be low; half the country is going to need to tell the IRS stuff about their personal life, if nothing else for dependents to correctly adjust EITC or CTC.
Cool. Until something goes wrong. Then you have to deal with challenging it. And of course, the IRS will be EXTREMELY helpful in a rapid resolution to your concern.. we expect your refund to be processed in no fewer than 482 days! ... burden on government is superior.
This is how it works where i live, they do the taxes and i can contest or add missing expenditure, its super easy if your employed you dont really do anything for filing its all done automatically.
Japan also has Furusato Nozei where (TL;DR) you can choose which province your taxes go to. In exchange, they send you local goods (crab, beef, etc.). This website shows some of the items available: https://www.furusato-tax.jp/
The overwhelming majority of taxpayers claim the standard deduction - since 2017, it's something like 90%. Most people have a W2, and 1099-INTs which are far less than their W2 income.
Only a small percentage of stupidly rich people really need to consult with tax advisors to construct elaborate stories about their complicated and catastrophic investment losses which mean that in spite of ever-growing wealth, they actually have negligible taxable income. The rest of us are suckers for taking a W2 and have really simple taxes.
But if that is your situation it's actually really easy and free to file your taxes today. Meaning a couple clicks and done. I'm all for an IRS solution but let's not blow this out of proportion.
Yes, thank you intuit for making the process of filing taxes so easy and free but only if you make less than 70k a year or whatever their threshold is! Just a couple of clicks is all it takes!!
It’s such BS that these companies cause this tax mess to begin with and then get free goodwill and advertising based on them making it “easier.” It’s so infuriating.
Yes, there are now also other companies that offer free tax filing. That’s literally not the point, is it?
Also who the hell is TaxHawk and why should they have my tax filing info lmao. The IRS already has everything. A simple letter, text message, or email from the government I pay taxes to is all it should take for me to get taxes complete. I review what they have, do nothing if it’s correct, and either pay taxes or get a tax return. Anything beyond that is a complete and utter waste of time.
California taxes are free when done from their site, which has been working fine for ~15 years. And it was late then considering much of the birth of the internet and web happened there.
The free part isn't particularly important, as the price is built-in. It is that it's centralized. Paying the organization directly with no potentially malicious actors brokering the transaction. (Also, low income tax states typically have higher taxes in other areas to compensate.)
Not at all. There are limits that amount to poverty wages in CA. Not to mention squeezing an unwanted, insecure rent-seeking third party into your finances.
That's not really true. The IRS knows exactly what your investment income is if it is invested through a reputable broker. They all have to inform the IRS of all your transactions, dividends and interest.
Even for property, the vast majority of the property that people own is the house they live in and sales on home real estate are public information.
You're missing huge segments of income and deductions that are opaque to the IRS. In other cases, the information the IRS needs to calculate your tax isn't available until everyone else files their taxes (cyclic dependency). Some examples:
- Investors in a local restaurant may receive dividends which are not disclosed to the IRS until the restaurant files taxes.
- Those dividends may reach a person via intermediaries. For example, a person receives her share of dividends from all the investments from an investment company in which she is an investor. That company may also have in turn invested into other investment companies.
- A person inherits stock and migrates it to her brokerage account. Subsequently, she sells it. Neither the original brokerage nor her brokerage knows her cost basis and therefore can't know what portion of the proceeds are taxable.
- Inheritances can get messy, in particular because in some cases the IRS needs to know the size of the estate where the inheritance originated in order to calculate the tax.
- Taxes, tips, and direct crypto sales are all taxable events of which the IRS may have no data.
- Rents: you don't tell the IRS how much rent you pay; the corollary is that the IRS doesn't know how much rent the landlord took in. And even if they did, to calculate the tax they also need to know the sum of expenses for the year. To calculate that, you may need to know the financing of the property.
There are similarly many cases on the deductions side of the ledger where a naive approach will end up over-collecting from taxpayers (people would love that).
(Yes, some of these could change if we changed our tax code. But that's not something the IRS is able to do.)
I think the idea is the government notifies you that if you do nothing, this is your tax situation. You still would have the option to file if you are one of the few people that have the issues you list. The idea is to get a better system for most people, not a perfect system for all people.
How many people do you think are getting any of these types of income? The answer is almost none. Almost everyone in the country has nothing but W2 income and maybe a few things on a 1099 from a broker.
Reporting of basis (to the IRS) for publicly traded shares was required only starting for purchases in 2011 (2012 for dividend reinvestment plans).
Sale prices of houses are public in some jurisdictions but not in others. Improvements are not reported to the IRS of course, some of which add to the basis.
Schedule C would be entirely impossible for the IRS to calculate for you.
Automated filing is not an impossible task for everyone, but it’s far from perfectly automatible.
If you only have W2s and (most) 1099s and make <$200,000 it's pretty straightforward to use free file fillable forms for federal and your state's free electronic filing service. You can also mail the forms in. You just do 1040 and skip all the schedules.
I've only had such simple taxes for like a couple adult years. I've had at least 1 other complication every year since. The stats seem to imply a similar pattern broadly too since each schedule is only filed by a minority of returns, but most returns file at least one schedule.
Yes, and they could still file those Schedule Cs against their automatic tax bill. Schedule C is totally separate, and could even be filed totally separately just like a business return.
But they easily could be. You fill out a Schedule C and it changes one line on your 1040. If the government filled out your 1040 for you, you'd do your Schedule C and 1, and then fill that into the one line on your pre-filled 1040.
hear hear, it's umimaginably dumb that we don't just do a flat tax on income over say 80k. feds can have 12%, state can have 8% and all this complexity can be burned down.
The problem with these "who says the current law has to stay as it is" discussions is that the more that is proposed to be changed, the lower the likelihood it will ever happen
For purposes of this discussion, and most importantly for the tax payer for which this system imposes the most pointless hardship, absolutely, yes, let's get it done. Now.
But. The tax code is needlessly and intentionally convoluted. For a large number of tax payers, you get all sorts of choices on how to file things, how to declare things, what years to declare what, etc, etc, etc. Many of these choices will be based on what you expect to occur next quarter, next year, etc. People in these situations can typically afford to pay an accountant several hundred or thousand dollars a year to help them make the optimal decisions.
I think a large part of the population fits in the above bucket and the processes for handling the above issues could be simplified. Perhaps those looking to itemize could complicate their yearly tax calculations or hire a CPA, but the rest of the population would be well served by having an automated process (whose numbers are already in place as is)
Why are investments a problem? The IRS gets a copy of my capital gains at the end of the year. For probably 90% of people, the IRS has enough info to do their taxes for them (as evinced by all the times where the IRS tells someone they were $2 off or whatever on their calculations).
And in most countries, you'd just add that to the tax return information they send you. And if that furnace gets you discounts over years, you should only have to do that once - the next years, they'll have the information.
Or alternatively: They can directly subsidize high efficiency furnaces, which would actually allow more people to have them than a tax credit will since it would lower the barrier to entry (price).
> Taxes are complicated because in reality they are actually complicated for many tax payers.
I have property, investments, multiple incomes, including international stock compensation that involves three countries, dependents... and my UK tax return is trivial.
I bought a high efficiency furnace this year. That is eligible for a tax deduction. How could that ever work if I don't file my own taxes? The seller isn't sending that info to the IRS.
You pull up the website where all of the information the IRS knows is already prefilled. You click on the "Efficiency Improvements Exception" box and add the value of your furnace. Click on any other things the IRS missed and add them. Click "submit" to finish the tax return. Done.
That's not true: Other countries pull it off without issue. Where I am, the tax agency has a calculator, and it includes most basic stuff. Your employer collects your tax rate from the tax agency (who lets you know that someone is getting your information and stuff).
Taxes are complicated for the average person in the US because the US government makes it that way and so far, has been unwilling to act in your interest.
Your barring certain foreign investments your investment income is reported to the IRS very similar to how your W2 income is. Those 1099s aren't just sent to you, they are sent to the IRS as well.
There could easily be a system for updating your dependents with the IRS that doesn't involve doing the whole thing yourself.
Dependent isn't just children, and if you are separated or unmarried it may not even be your children that count as dependents. It doesn't even require you to be the legal guardian.
But almost no one claims those kind of dependents. And furthermore, the government could just say, "last year you claimed these people as dependents, and we checked and they're all still alive, so we'll assume they still are".
It works just fine in Japan with all of those complications. The vast majority of people don't touch the tax return automatically filed by their employer.
but no other nation on earth makes its citizens go through this annual horror show...and just as a coinky dink, turbotax gives generous donations to politicians...odd case...
Nope, it works fine here and in maby ither countries in Europe, and apparently Japan. The US is juat way behind the times because od lobbying amd corruption.
One reason this has been difficult to get approve is that low-tax crusaders have been blocking it. However you want to frame that -- people who want no taxes at all, people who simply don't want taxes to go up more, whatever.
Automatic income tax withholding was opposed for the reason reason(s). People who want taxes to be lower don't want the "pain" of taxes to be hidden. They want people to cringe every time they write a check for tens of thousands of their hard-earned dollars, not just have it magically spirited off to the government.
Filling out taxes helps share some of the same pain. Every year, every tax filer thinks "man, taxes suck." This undoubtedly has at least some effect on voters' willingness to pay even more.
Would that constituency have the power to block progress on this issue if not for intuit lobbyists?
It's crazy that people are still going to jail for grams of weed while people who have wasted billions of dollars of human productivity every year get to walk free.
I'm sympathetic to this argument IFF the standard were that I'd get my full pay, for instance, and then would be responsible for taxes later. I'd hazard a guess that conversation would not go over very well at all with my HR department.
> People who want taxes to be lower don't want the "pain" of taxes to be hidden. They want people to cringe every time they write a check for tens of thousands of their hard-earned dollars, not just have it magically spirited off to the government.
This argument against automated tax filing seems to make sense to me. But if it’s true, shouldn’t we have manual tax returns for vehicles, real estate, sales, and fuel?
We actually do have these things in some places, although things like the gas tax and the sales tax are levied on stores, not individual consumers - they just pass the cost on to consumers. There is a tax analogous to a sales tax in most US states called a "consumption tax" or something similar, where you are asked to pay sales tax on stuff you bought outside of the state (and list the stuff). I have personally filled out real estate tax forms and car-related tax forms.
One of the hurdles here is that the IRS has increasingly deputized tax preparers as their first line of enforcement via preparer penalties [1].
Another is that a free filing system with pre-populated returns shifts the information asymmetry involved in tax filing to be fully in the taxpayer's favor. Many people have an "I need to report everything because I don't know what the IRS knows" mindset. If the IRS populates a taxpayer's return with all the info they have, there's no incentive to report anything not listed.
You know you can log in and see what the IRS knows, right? They make that available to you in their portal. They post it after the tax deadline though, but you can go back and see what they knew about you in previous years (the forms they got, not what you filed).
Yep that's exactly what my accountant does. We file an extension with a big payment and then wait for the transcripts. The only thing I have to give him is business expenses, donations, and few other deductions that aren't in the transcripts.
This is the real way to file taxes if you have a complicated return. I just learned about it last year - I usually have gotten huge refunds (employer withholding doesn't account for side business expenses), so I filed early and had to deal with the consequences.
I find it difficult to believe that most of Europe would continue to use their pre-filled tax forms if claims that it incentivized under-reporting were even remotely true.
As someone who worked on policies directed at the low-income population, all I can say is, it's about time! The time and energy we put into promoting the District of Columbia's EITC campaign, helping recruit volunteers to prepare taxes for free, etc. could have been much better spent.
I know there are challenges, mostly confronting lobbyists as the articles mentions. But we can put a man on the moon. . .
> As someone who worked on policies directed at the low-income population
Then I would certainly hope you are aware that it is completely free for low income residents to file their taxes with any number of services. This has been a solved problem for years and makes me a bit curious about your experience. Could you possibly comment on what issues you’ve encountered with the current free options?
The passive phrase "will look into" fills me with dread. Old Seattleites will remember voting for a light rail system, only to watch friends of politicians get hired to "consult" on the project and piss away the entire budget in the consultation phase. Just do it!
I wondered about this too, how they’re budgeting $15 million to “look into” an e-filing system. With the right team of project, product, design, and engineering talent, couldn’t $15 million go a long ways towards building a working MVP, at least for simpler tax returns? But I’m sure that’s just wishful thinking in my naive developer mind…
The Obamacare website cost billions. Governments struggle with tech. They tend to hire Accenture types who bullshit the clueless bureaucrats and siphon off the taxpayer's cash. It's not their money and they're not staked in the upside with bonuses and you can't get fired from public service, so why should they care? The incentives aren't there for performance. And even if they did care, they often don't have the competency to achieve it effectively and efficiently anyway. That's not to say we shouldn't try, though, other countries have figure out how to have a well run public efiling service, so it's possible.
It won't happen because it creates a problematic power structure for the federal government.
In that scenario, any of those intermediaries who are unhappy with the tiers above them can simply refuse to pass on the income. If Texas wants to strong-arm looser federal gun regulations, or California wants to strong-arm abortion protections at the federal level, they can just refuse to pay taxes to the federal government.
Citizens can do the same thing, but at a much higher risk and dramatically more organizing. Citizens risk being arrested and funds can be confiscated, but what can the feds do if a state does it? Invade? Plus you would need millions of citizens to not pay taxes to have an effect, but you need a tiny number of states to throw the entire budget into chaos.
What you're saying makes sense from an efficiency perspective, but I don't think the power dynamic is acceptable to the federal government.
The state should have ultimate responsibility once it accepts the return from a resident. If the federal runs an audit and finds a mistake it needs to "convince" the state to do better: actions through Congress, fines based on a narrow system, forced training, etc., or just eat the loss (or take the gain).
In this model the federal government only deals with inter-state taxation and with collecting taxes from the state.
The goal is to take away the responsibility AND authority from the federal IRS, to streamline the process. If the IRS remains responsible but just has the states "do a first draft", it's useless.
That makes sense to me, states are basically tiny countries. You should pay taxes to the body that has your best interest, and that body is probably your city. Who has the city's best interest at heart? The state. And so on.
My state and local governments have figured out the right way to do this. I pay property tax to the state, and income tax to the federal government. There's no overlap or issue.
I used to live in NYC, and that was a kafkaesque nightmare in comparison.
It's not as bad as say sales tax, but it is regressive. Say I make $200,000 and my neighbor lives in an identical house and makes $400,000. We will both pay the same property tax. With an income tax they would pay more. I don't advocate for a wealth tax, but I do think a progressive income tax is a better way to raise revenue than property tax.
Wait, who defined income as the gold standard of the "progressiveness" of a tax system? If I make $200,000 and have $20 million of property, should I pay less tax than someone who makes $400,000 and has $500,000 in property?
It's not taxing net worth it is taxing one specific type of property. Most of Jeff Bezos' money isn't in real estate. It is regressive in that everyone needs housing. With an income tax you can have a zero/negative tax rate on low earners. Everyone who isn't homeless (even if through rent) pays property taxes.
You can see this effect if you compare the effective tax rates of California that has a income tax to Texas which relies on sales and property taxes.
California still has sales and property taxes so it isn't perfectly progressive, but it is much better.
I also don't really like how with property tax you can end up losing your assets. Let's say you work for years doing construction and pay off your house and then you end up on disability after hurting yourself. With property taxes you can end up losing your home.
I'm not convinced though that you are arguing in good faith and aren't just one of the few who benefit from a lower effective tax rate from regressive taxes. Why do you think a wealth tax is the best form of taxation and how would you implement it?
I'm probably very progressive by American standards. I think the state should exist to protect citizens from the worst of the slings and arrows. That's the purpose of the state.
Society should provide a basic level of health insurance, including disability allowance. (America's example suggests that this cannot be done privately, because insurers can bully citizens with size asymmetry.)
I don't think that disability allowance should cover the property tax for a massive ranch, but it should allow a moderate lifestyle. If you pile all your wealth into lots of real estate and become disabled, you may then have a hard choice: rent out some property, or downsize. But I don't think that's too bad. I'm not arguing for guaranteed luxury.
An average middle-class worker owning an average house who becomes disabled should not have to downsize; the allowance should cover property tax and running costs.
And yes, I'd fund this benefit from wealth taxes such as property tax.
Stepping back to address your main point, porqué no los dos?
Tax property, but cover it for poor citizens with negative income tax.
Professional landlords should profit from the value of maintenance they perform but, let's be real, what they mainly do is arbitrage rent against their credit rating on secured assets. That margin ought to be narrow; fuck 'em.
It's an undesired effect to subsidise scroungers, but the lesser of the evils compared to rent-seeking. On one hand, scroungers are poor, on the other, they're wealthy.
Since you assumed I was arguing in bad faith here, I assume that you are too, and that you are someone who is property rich but not very productive (eg a landlord of some kind, or a Californian benefiting from prop 13), and you are interested in keeping your privileged tax status.
Personally, I am in the top 10% of income earners, but not the top 1%, and I get most of my income from LTCG (this is how the tax code incentivizes you to structure your income, and I follow incentives).
All of your arguments here and the resulting evidence assume that "fairness" in a tax system is about charging people with high incomes more. Specifically, that progressive taxation - which has nothing to do with political progressiveness or social progress, and is just about the tax progressing as your income goes up - is the fair way to tax people. It is not. Pulling out these sources as arguments in favor of progressive taxation is begging the question.
Income and wealth are correlated, but they are not the same. Income and the societal costs of your existence are also not correlated. All of these "tax fairness" pictures and websites use a sleight of hand to deflect the attention from the wealthy: they use "1%" to refer to the top 1% of income earners, not the people who you would think are actually in "the 1%" as occupy wall street would have identified.
The people who take the brunt of the burden of today's progressive tax system are middle class doctors, lawyers, and software engineers. These are not people who take up a lot of resources or place a significant drain on society - they tend to spend their time working rather than joyriding in yachts and private jets or lobbying for subsidies for their businesses. These are people who create a lot of value for the rest of the economy, and it is silly to use "progressive" taxation to punish this value creation.
Progressive taxes, in my opinion, are not fair. They are the wealthy pulling up the ladder and making it harder to compete with them. They are taxing people who benefit society a lot in order to subsidize people who have accrued a lot of resources in the past.
Wealth in assets tends to move from things that aren't real estate to real estate. Companies tend to go bust after 100 years or so, even investing in every company on the market exposes you to fairly high beta, things like gold don't appreciate much, government bonds don't have an appropriate term or appropriate returns for 100 year time horizons, etc. If you want to preserve a fortune, or if you are investing for longer than a 50 year time horizon, you do it in real estate.
Therefore, the loss of property due to taxation is not a bug: it's a feature. If you are property rich, you should have a long-term incentive in making sure that your community does well, and you benefit a lot from the systems that maintain your property rights. You should be happy to pay higher property taxes because of that. Ultimately, your property rights are about excluding other people from using that property, and the government guarantees that right using the courts and using guns. If you want to stay property rich, you should have to do something that benefits society.
In comparison, a fair tax system, in my opinion, should be about the drain of resources that you place on society (this does not include things like welfare payments, which are not societal drains, but transfers of wealth). This means:
* Vehicle and gas taxes based on how much you drive, as well as taxes on railroads, flights, etc.
* Physical property taxes
* Luxury goods consumption taxes - a VAT or a sales tax works
* Carbon and pollution taxes
* Sin taxes
* High fines for criminal acts - preferably income-based or wealth-based fines
* License fees for resource extraction
* Fees and taxes for intellectual property maintenance
* A flat income tax that applies to all forms of income over a certain amount
Align the taxes with the costs that society bears for your existence. That should also have the benefit of further disincentivizing antisocial behavior. Tax people for the value they drain from the society, not for the value they add. *That* is fair.
My household spends 2 weekends per year on taxes. We own a few companies and would otherwise be spending time on those companies(or maybe our families).
A streamlined tax system is worth 4 days per year. I imagine that in the future, it will take more time as our businesses grow.
Like we have for years (Netherlands). We used to have an application you could download to fill your returns. It could be downloaded for Windows, Mac and Linux. Now it is just a website and it is very elaborate. Most people can go through the wizard and click OK; everything is pre-filled. Only if in some cases you require to fill in extra's. Like selling your house and buying a new one makes the returns trickier. In those cases people often opt for letting the tax returns be done by a professional (well at least: I do).
Ah, but that wouldn't work here in the US because, of course, for one thing, what most people usually overlook is that, the first thing you have to remember is, it really is the case that,
We have the same situation here in Australia, except the old e-Tax app was Windows-only and was the only reason Linux and Mac users kept a Windows XP VM around to be booted up once a year to file a tax return.
Yet another basic service that the "greatest country in the world" is missing that the rest of civilisation has had longer than iPhones.
Isn't one of the legitimate barriers to an easy tax system that we have such a patchwork of non-communicating state governments and tax policies that for many people a pre-filled form would be badly missing info, or worse, missing out on credits people are due? Although, maybe no worse than it is now. It feels like the states treasuries/tax collectors barely talk to the IRS (oversimplifying of course).
That and there are so many non-automatically-reportable exceptions (income doesn't have to be logged and calculated consistently and sent to the IRS), loopholes, deductions, etc. in tax law. Although, again, most of the population could be satisfied / correctly done with a baseline product. At least brokerage capital gains started being reported automatically (and mandatory) although I notice there are tons of errors than can crop up, as well as exceptions that break the system.
Not saying I like the situation Intuit keeps us in, and we should automate as much as possible, but aren't there deeper reasons fueling their existence? We should fix those problems as well -- but I suppose that is asking Congress to pass or restrain themselves from mucking up the system every time they want to inject some favored loophole.
The answer then is to at least pre-fill the information the government does know, because it was reported by banks/your employer/whoever else. Why do I have to enter in how much interest I made or stock sales or whatever when the relevant financial institution already reported this to the feds? The computer is less likely to screw it up than I am.
The single most frustrating thing about Turbo Tax is the data entry: I'm not an expert, and chances are I'll get something wrong.
Now, the IRS has all the information to provide a pre-filled-out tax return. They even do it internally to check that I filed my taxes correctly! Can they legally provide it to me... NO! When I did have to deal with errors, I only knew because the IRS sent me a bill. (Someone sent an incorrect W2 to the IRS.) I never had the opportunity to correct the error before I submitted my taxes.
It would be so much easier if TurboTax could hook into an API that downloaded my tax return and then I could check it for errors. I'm sure they'll figure out some kind of upsell that makes it "worth it" for me to pay them $100 as opposed to using the IRS's version.
They've almost got a working system already. Free File Fillable Forms (alliteration intended?) has improved each year since it has existed. It has the downside that it looks like the paper forms, which is likely to be offputting to some. If they just finished it so that it (a) does 100% of the math for you (b) transfers 100% of the values between forms for you, it would be a system that could be used by anyone.
That's not to say that a totally different UI approach (e.g. as used by Turbo Tax) would not be even better, but they absolutely do not need to "start from scratch"
> The timing is auspicious for such an endeavor. As you may know, if you make $72,000 or less, you’re eligible for a free return through the IRS Free File program, including software provided by Intuit, the company that operates TurboTax. If you make more, you’re eligible for Free File Fillable Forms, an Intuit product.
If you open the actual forms (not the homepage) the asset links went through an Intuit CDN. I'm not sure if this is still the case.
Even more oddly, the Vox article is from April 2022, so if it was sold or transferred it was recently.
I used FFFF for a few years, and it always felt like it was trying to _exactly_ meet a set of requirements -- functional enough to legally fulfill a contract, but just frustrating enough to use that most people would go use a paid product instead.
e.g. it would do all the math that was defined on a given form for you, but wouldn't fill out any worksheets in the instructions. IIRC it also wouldn't automatically fill in the "Enter $X if filing single, $Y if married, ..." fields. Most annoyingly, it disallowed copy/paste, which seems like something they would've had to have broken on purpose.
As I mentioned, every year that I've used it (I think 5 at this point), it has gotten a little bit better. More form-to-form transfers, less manual arithmetic within forms.
I've used it routinely for many years now. I also used it for VA which had similar free fillable forms. It seemed like an exact copy UI-wise but on a different domain.
However, this past year VA dropped free fillable forms due to lack of funding. Had to go back to mailing forms :/
(B) Task force to design an irs-run free “direct efile” tax return system.—For necessary expenses of the Internal Revenue Service to deliver to Congress, within nine months following the date of the enactment of this Act, a report on (I) the cost (including options for differential coverage based on taxpayer adjusted gross income and return complexity) of developing and running a free direct efile tax return system, including costs to build and administer each release, with a focus on multi-lingual and mobile-friendly features and safeguards for taxpayer data; (II) taxpayer opinions, expectations, and level of trust, based on surveys, for such a free direct efile system; and (III) the opinions of an independent third-party on the overall feasibility, approach, schedule, cost, organizational design, and Internal Revenue Service capacity to deliver such a direct efile tax return system, $15,000,000, to remain available until September 30, 2023: Provided, That these amounts shall be in addition to amounts otherwise available for such purposes.
From the article: "The Internal Revenue Service will spend $15 million studying a free, government-backed tax filing system". It's a long way from studying to implementing. Intuit pays their lobbyists to make sure this doesn't happen.
If people think the problem here is simply lobbying by a few companies, you are WAY underestimating the problem. This is not as simple as building a website. There's an entire, incredibly outdated system that needs to be rebuilt and totally reimagined from the ground up.
What people in this thread are suggesting isn't recreating Turbotax, it's something that takes the data they already have and giving it to the user to simply confirm and say "yeah that's good."
They are going to look into it for $15 million dollars. Give that $15 million to a company like VMWare Tanzu Labs and they will deliver quality software which we can all use.
That being said, i don't expect this to happen in the next 5-10yrs because of ~bribing~ err lobbying (because this is America). TurboTax and H&R Block are not going to let this happen.
As a tax preparer I have been hoping the previous attempts to make a system would prevail. Intuit and other companies have been blocking these things for a very long time because they mislead people into paying for their e-file instead of allowing people to use the proper IRS free e-file they are required to offer by law.
This would reduce some of my business but also free up time for the people that actually need preparation services such as people who have a lot of deductions, businesses, rental properties, etc. My overall business would only change minimally but the cheats at Intuit, etc. would lose a lot of money in comparison because they wouldn't be able to charge money for a free offered service that is hidden as well as they can get away with.
>"The Internal Revenue Service will spend $15 million studying a free, government-backed tax filing system under a provision in the sweeping climate and health-care law Congress passed this summer."
Why does "studying a free filing system" require $15 million?
>"Now lawmakers including Sens. Elizabeth Warren (D-Mass.) and Sherrod Brown (D-Ohio), who pushed for the IRS free-file study, say they hope the funding will encourage the agency to more vigorously pursue its own platform."
This is the congress who had been cutting the IRS funding forever[1]. There's no way that the IRS can pursue its own platform without Congress loosening the purse strings.
>"Sen. Ron Wyden (D-Ore.), chair of the chamber’s Finance Committee, asked the IRS to conduct a taxpayer opinion survey on an e-file system and consult a vendor to begin to build a government-backed platform."
I think this answers my above question of why "studying a free filing system" requires $15 million. I'm guessing the "vendor" here is McKinsey or one of the other big 4 consulting firms. They will hoover most of the $15 million with the results of the study being "if you pay us, McKinsey, a hundred million dollars we can definitely build this for you."
- Eliminate capital gains tax. Taxing capital gains is essentially blind theft, and there's a strong moral foundation to stop doing it. I believe the US would have greater economic prosperity by eliminating a capital gains tax.
- Just tell people what they owe/what they are owed. You're the IRS, there's no reason why I should be telling YOU how much I made when you already know the answer. If I think you're wrong, I can prove that.
- Stop auditing people who are making less than $5m/year in income. The amount of revenue recovered from smaller earners is negligible and resources that now go to the IRS to staff thousands of agents could be used a hell of a lot better.
That's a terrible idea. Capital gains is basically the only way to tax the uber and intergenerationally wealthy. If anything, capital gains tax should be at the same level as income tax, so that there's less economic incentive to game the system.
> Capital gains is basically the only way to tax the uber and intergenerationally wealthy
That's just simply not true. There are thousands of ways to tax the ultra wealthy. We just don't use any of them. Capital gains tax is a horrendous idea that mostly punishes the middle class for doing well in the stock market. The uber wealthy are feeling none of that pain. Find a different solution.
The whole other 99% of the population share 50% of all stocks. Most of "middle class" own little to no significant amount of stocks.
Also, if you must work, you're working class. The "middle class" is a propaganda term to keep the working class divided between those who feel like they're successful from those who are struggling. And speaking to the success of that propaganda: 22% of people think they're "middle class" and aren't: https://finance.yahoo.com/news/22-americans-mistakenly-think...
It is actually true. The wealthy will die without liquidating most their stocks, then the basis gets reset when their heirs inherit it. In practice, they don't pay tax. But the reform to fix that is to eliminate the basis resetting rule.
My capital is miserable, but the CGT on it comes out of my free cash. I had a tiny trust fund mature and had to borrow a third of my salary to pay the tax bill.
Taxing labor isn't theft but taxing capital gains is? How does it make sense to want to tax the direct products of someone's time and energy and direct contribution to society, and not want to tax the gains of sitting on capital assets while central banks pump them up?
"Stop auditing people who are making less than $5m/year in income."
If P(audit) literally equals zero, all rational agents will stop paying tax.
> Taxing labor isn't theft but taxing capital gains is?
In an ideal world all taxation would go away and the IRS would be abolished. In the real world we have to work with what’s feasible, and I think killing capital gains tax could be a feasible platform to run on as a leader.
> If P(audit) literally equals zero, all rational agents will stop paying tax.
If you’re making over $5m and are pretty much guaranteed to be audited, why would you stop paying taxes?
Well I'm not an anarchist so I believe we need some taxes. Labor tax is the highest priority for elimination, and there should be more buy in for that idea because the middle class benefits more, since most of their living comes from incomes than capital gains.
Capital gains tax is good if the loopholes are fixed such as cost basis resetting upon death. Otherwise we need a global wealth tax, negotiated between the EU and US to avoid capital flight. Such a tax is actually good because it improves the quality of our democracy by reducing the ability for ultra wealthy people to enact their crony capitalist corruption. This is a unique reason to tax capital wealth that isn't applicable to labor taxes.
"If you’re making over $5m and are pretty much guaranteed to be audited, why would you stop paying taxes?"
I can't tell you how relieved I am to hear that the overworked and underfunded Internal Revenue Service is going to "look into this". Maybe my grandchildren some day will have a more pleasant experience filing their taxes.
This seems like a marginal improvement at best. If your taxes are at all complicated, this likely won't be sufficient and you'll still be paying professionals. If your taxes are fairly simple, you can already file for free without too much effort. I suppose there is an in-between group who may benefit from saving the $50-$200 for more advanced online self-filing. I've been that person many years in the past, but I could easily afford those fees.
Better to have invested that $15 million in radical ways to simplify this entire insane(ly stupid) process.
Just repeal the 16th amendment - the income tax is too intrusive, and its too much of a temptation for politicians to use it for social engineering. There are other ways to tax that do not require the government to know everything about what everyone is doing.
> Just repeal the 16th amendment - the income tax is too intrusive
Fun fact: the 16th Amendment does not give Congress the power to levy taxes on income. Congress already had that power.
What the 16th Amendment does is directly overturn SCOTUS's Pollock decision, which ruled that a tax on income derived from rent was effectively a tax on property and therefore a direct tax, which the Constitution requires to be apportioned to the states based on population. Even if you repealed the 16th Amendment, it's doubtful that modern SCOTUS would uphold the precedent of Pollock anyways (already shortly after the passage of the 16th Amendment, SCOTUS effectively overruled Pollock on the grounds that income taxes were indirect taxes anyways). This makes the 16th Amendment arguably the single most useless amendment to the US constitution.
> its too much of a temptation for politicians to use it for social engineering
Bullseye on the problem. This is the number one reason for the complexity. And the complexity is the number one reason for the massive resources required just to make the system work.
However, the solution... repeal the 16th amendment? If my memory of high school history class serves, didn't trying alternatives lead to the 16th amendment?
[edit] To provide some more focus: I'm not saying the politicians are the problem, but the carrot-and-stick social engineering.
Even the evil Chinese government do better in this..
For the majority of people, the tax deduction is just in your income, and you have a (although questionable in privacy) mobile app if you are getting tax return or need to file for other off-the-book incomes.
-NO DEDUCTIONS WHATSOEVER!!!
-Flat single digit percentage of gross wage.
There would be no need for the entire Tax Preparation industry.
Our government hasn't worked for: We The People in decades, they could have implemented this free-filing system at any time, and yet they have not.
Our government doesn't work for us. They're not going to make paying or figuring out what's owed to them any easier for us. Why would they?
If the feds make preparation and filing easy for us, we'll all get to see just how far the big red-white-and-blue dick is shoved up our collective asses.
That one is actually third party, originally Intuit, now `On-LineTaxes, Inc`.
The system that IRS was charged with creating would basically amount to this, and it might be that they simply buy the system and make it an offical IRS product. They already had sufficent control over FFFF to force Intuit to divest after Intuit exited the free file alliance.
I unlike many people who seem to be hoping for basically ISR Turbotax or nicer, I really cannot see the IRS offing a more guided walkthough style system instead, since that is far more complicated than maintaining basically digital versions of the paper forms. In some areas TurboTax and the others get into more or less the business of offering tax advice, which may even be incorrect.
Those businesses can afford to reimburse you if their wizards result in incorrect totals due to a misunderstanding. The IRS on the other hand would need to make sure that the wizards never accidentally misclassify anything, even for incredibly rare esoteric cases. This could be done by possibly asking many extra seemingly irreleavnt questions to rule out all these edge cases, or to dumb the whole system down making it closer to just electronic versions of the forms. The result the IRS would pick is pretty obvious, go with the simpler almost-identical to the paper forms options.
oh, that's nice of them to "look into it". Just about all the other western nations either do taxes for the citizens or provide a free system for citizens...
a neoliberal exploitation plantation, if you can keep it...
Taxes don't pay for beach vacations of the 1%. At worst, they pay for the beach vacations of defense contractors and health insurance middlemen. The 1% pay for their beach vacations via record-high executive bonuses that are siphoned from the corporate profits that they refuse to share with their employees.
Now I'm interested to see where this is going. The plutocracy do not tend to regularly take out student loans. Federal student loans, the one the federal government has the power to discharge, were paid out of the pockets of taxpayers, where it was then used to fund the beach vacations of university administrators, a decade or two ago. Meanwhile, in the present, the beneficiaries of loan forgiveness are the lower-middle class college-educated who were poor enough to need a loan, rich enough to consider college in the first place, and unlucky enough to not take the one major (computer science) that would allow them to pay back their loan in the modern economy. Say what you will about student loan forgiveness, but at no point is any facet of it an appreciable vector of plutocratic wealth concentration.
Besides the regressive nature of that, do the math to see how high that sales tax would have to be to replace the income tax.
To give you an idea, total sales in the USA was about $6 trillion, and income tax revenue was $2 trillion. So you'd need a 33% national sales tax.
How do you think someone who makes $50,000 a year and spends it all would feel about paying 33% in taxes, when today they probably pay closer to 10% today?
Or if you make housing and food tax free, you'd need an even higher tax rate to make up for it.
Most countries that do a national sales tax do it in addition to an income tax.
Disagree slightly. It seems to me that the issue isn't how the taxation happens but where. In your example, the $55k person is paying less taxes up front than $$$ Mega-corp, but increased taxation on Mega-corp (and not $55k person) means Mega-corp now charges $55k person more for goods and services.
So, your main point is worth considering, but it's missing a vital point: the current taxation system is opaque in where funds come from. An alternative simpler taxation system is more transparent on where funds come from - I don't consider that regressive.
Let me put it crassly: if everyone paid 33% in taxes, the average voter would be more aware of the cost of tax-funded projects. Imagine what sort of voting that would lead to. I say "crassly" because in reality such a shift would definitely place a heavy burden on the poor in the near term. I honestly don't want that... but I also don't want to pull the wool over eyes.
Most flat tax schemes I've heard of don't require businesses to pay the tax, for exactly that reason--it just ends up being passed on to the consumer, anyway.
or you know a massive reduction in Federal Spending, the fact that US Sales was 6 trillion, and the US Government spent 4 Trillion should be ringing some alarms bells in people....
If we need a 33% national sales tax, that tells me the federal government SPENDS FAR TOOO MUCH MONEY
Sales taxes are regressive, and the current US tax system is deliberately progressive, in order to reflect our understanding of the marginal value of income.
The FairTax proposal improved on this by providing a rebate to everyone to cover tax for essentials. It also removed taxation on businesses which would likely cause prices to come down. There were many benefits and their research showed that overall tax burden would actually be less for the lower & middle class and higher for upper class (which avoids income tax anyways). Unfortunately it was too radical I believe, there's no way the U.S. would make that big of a leap.
It might still be slightly regressive, but that's not such a bad thing when overall tax burden would be reduced.
Markets are rarely competitive in a true sense. There are moats/barriers to competition, there's friction for users to switch to a different product. Companies often collude to keep prices static, or use a ratcheting mechanism to increase prices permanently[1].
[1] My trash removal company instituted a fuel tax 6 months ago when diesel was at an all time high. Diesel is now $.09 cheaper per gallon. Has the trash company stopped the surcharge? I'll leave it to your imagination. Oh and there are 5 trash companies in my area. They all charge within $.50/month for their service. I'm sure that's just the result of a competitive market.
Diesel fuel has gone up a lot more than $0.09 per gallon in the last year or two. It's close to doubled in fact, maybe more in some areas.
Yes in competitive markets you'd expect the pricess of commodity services to be close to the same. There isn't much differentiation other than price for something like trash removal. People will naturally choose the cheapest option. So all the services will cut their prices to the point where they will making their minimal acceptable profit.
Of course it's possible that the trash services are colluding to maintain higher prices. That's illegal, but it probably happens especially in something like trash removal where there's a history of corruption and the people involved all know or are related to each other.
Actually diesel in the US has had pretty stagnant prices the last four years. The big drop in 2020 (due to COVID wiping out demand) skews the averages and the Russian invasion of Ukraine has driven this year's prices high. But it's still $.09 cheaper than when my trash hauler instituted a "fuel surcharge."
Can you cite any known examples of reductions in some kind of non-explicit tax leading to reductions in prices (other than in cases where the tax is an explicit component of total cost, such as airline ticketing (at least since 2001)) ?
I have no interest in reducing the overall tax burden, and it would be helpful if proponents of ideas like FairTax were more explicit if this is the goal.
I want the various governments of the US to have control over a larger slice of GDP, not less.
Please cite one of those studies that claimed that higher income quintile and higher wealth quintiles would pay more under a "FairTax"-like system, because I've never seen one that makes that claim. Here is that specifically rebuts your claim:
"The FairTax is promoted as being progressive, but there is considerable skepticism of this claim. We examine the distributional effects of the FairTax, as well as the current system it intends to replace, under both annual income and lifetime income approaches. Global measures of progressivity suggest that the current federal tax system is progressive while the FairTax is regressive. Our results are also robust to different assumptions used for estimation."
Even if the rate is variable, sales taxes are still regressive. Poor people spend a much larger % of their income on goods compared to rich people. For me, personally, my sales tax would need to be around 1,000% (for every dollar I spend, I pay $10 in tax) to match what I pay in income tax.
but almost all the so-called 'socialist' nations in europe have heavier sales taxes...but we cannot do it here because it's regressive and we are so much more leftist than europe...tee hee...
Depends on what they are spending it on. If poor people are buying food & housing it would be tax free. If they are buying large screen TVs maybe not so much. But even then the claim was that prices would come down eliminating most of the cost of the tax (due to no taxes on businesses including payroll taxes). It also might mean higher wages. Obviously there was no way to prove these things as it hasn't been tried, but there was a lot of research done trying to model it out.
> But even then the claim was that prices would come down eliminating most of the cost of the tax (due to no taxes on businesses including payroll taxes)
We actually frequently try lowering corporate taxes. What we find is that prices stay high, wages stay low, but profits increase. Crazy.
I'm not following, it doesn't really matter what they consider it - I don't remember it being done before (reducing payroll taxes). Currently both the employer and the employee pay a big chunk here. In addition sole proprietors and self employed individuals pay even more.
A sole proprietor isn’t a corporation. I get the 20% deduction as well but it only applies to self employed individuals. All I was saying is I don’t think they have tried cutting corporate taxes other than the main corporate tax rate on profits. I think there was a misunderstanding.
Right, but my kids don't fund the federal government solely through a federal sales tax which is what this proposes. It just doesn't sound fair that they should be taxed to this degree without representation - it violates the social contract.
I think you said that taxation on your children without their (democratic) representation (via voting) was not a good thing and broke the social contract.
SoftTalker then noted that we tax resident aliens but do not allow them to vote, presumably seeing some similarity in terms its impact on the (implicit) social contract.
Thank you. A lot of times people end up talking Past each other in these sorts of threads. Appreciate it!
Yes. That is a contradiction. Categorically, it's not fair to expect someone to pay for things without letting them have some degree of decision making in how the money is spent. Otherwise it's simply robbery.
Yet that is precisely how our system works vis-a-vis resident aliens ("green card holders"). They have all the responsibilities of citizens but no right to vote.
Sounds messed up. I'd really hate to get into a dialog where this sort of stuff is justified because it's just running rampant and it's just easier to give up and convince oneself that it's actually ok because the alternative is simply too difficult to imagine.
The regressiveness of sales taxes is fairly irrelevant since the government can simply perform direct redistribution to achieve any desired level of progressivity.
> abolishing the income tax and going to a direct, national sales tax
Sales taxes are regressive. It's the rich and upper classes that stand to gain the most by the abolition of income taxes. They don't consume enough to drive up huge sales tax bills. In terms of positive generation, mostly they accumulate income and asset gains. Overwhelmingly they don't spend their wealth on buying Ferraris and mansions. In the US the top 10% pay 71% of all income taxes (while taking home 30% of the income). Their consumption is not high enough to offset if you switch to a sales tax system. It would do something beyond brutalizing the bottom 3/4 of people; it would destitute the majority of workers in the country if you attempted it and were serious about trying to bring in enough revenue to offset the loss of the income tax.
The US has a very progressive income taxation system, far more so than most of Europe (including all of Scandinavia). The US middle class and below pay exceptionally low income taxes, the burden is overwhelmingly carried by the higher income brackets already.
> The US has a very progressive income taxation system, far more so than most of Europe (including all of Scandinavia). The US middle class and below pay exceptionally low income taxes, the burden is overwhelmingly carried by the higher income brackets already.
We have progressive wage income taxes (much less so if you include highly-regressive FICA contributions at ~7.5% for W2 and ~15% for 1099 employees—but still) but overall the US income tax scheme is quite regressive, thanks to how capital gains taxes work, which leads to things like Warren Buffet observing that he enjoys a lower tax rate than his secretary does.
> The US has a very progressive income taxation system
It has strongly progressive main rates for income tax, but it has extremely regressive exclusions from income taxation and from the main rates, and it has a whole separate regressive system of taxation on labor income not characterized as an income tax in its payroll taxes.
It also, viewing state and federal systems combined, has a very large portion of total taxes in other, non-income, taxes which tend to be regressive.
Land and resource usage taxes (aluminum, oil, whatever) might be more efficient and produce better outcomes.
It seems easier to come up with that value every year and let the taxed pass the costs on to final consumers rather then chasing around a million waitresses for unreported tips.
This doesn't go far enough! If you really believe in equality, we need to have a flat tax on everyone. Each person should just pay $1000 per year, and that's it. That is truly fair. /s
Is debt counted in? Is it a difference in wealth from one year to the next? What if someone has a reduction in wealth? What IS wealth? Is thr same asset taxed multiple times? What if someone has to liquidate something because of such taxes?
Most countries that had a wealth tax repealed it or partially repealed it because it was too complicated.
Namely, how do you value private assets? How much is a paining worth? Or your private company?
Houses are easy to do because there is a ton of data and comparables (and even then wealthy people contest those assessments). Now imagine the government getting into the business of valuing private companies.
> The value of private companies is determined each year by the cantonal tax authorities based
on an inter-cantonal administrative guideline agreed upon by the cantonal tax departments.
Taxpayers may challenge the application of this guideline in court but appeals are rarely
successful (cf. an example in section 0, below). In case the fair-market value of operational
companies cannot easily be assessed (e.g. because of lack of recent sales between independent
third parties), their value is determined according to the formulaic method, called the
practitioner's method. A company's value is determined by calculating the weighted average of
its ‘earnings value’ and its net asset value (i.e. fair market value of assets minus liabilities),
thereby counting the earnings value twice. The earnings value is determined by capitalising the
adjusted average net profit of the last two or three years with a capitalisation rate (of currently
7%), which applies uniformly to all industries. Holding companies or real-estate companies are
valued based on the net asset value of the underlying assets.
It won't be perfect, but it's predictably imperfect.
The way they do it just kicks the the can down the road. The company is "net asset value", but how do you value of the software they have, or the data they hold, or the paintings the company holds, or all their other assets?
When a company is sold the value of the assets is negotiated for sometimes years. And is different for every acquirer. How is the government going to do that for everyone every year?
> The way they do it just kicks the the can down the road.
No, it accepts that some wealth may require estimates, eventual corrections, and occasionally court resolution. (The doc cites an example of a $2M painting hung in a kitchen being deemed non-household goods.)
The "there's an edge case, therefore it can't work" argument is hard to sustain when there are countries making it work. The Swiss handle paintings, private companies, and presumably IP (I can't find specific details in here) in their system.
I'm not saying it can't work because of an edge case. I'm saying the system has fundamental flaws and here are some examples.
And I can turn the same logic around on you: Why do you think this will work when just one country is claiming to do it successfully? Especially after other countries tried it and then repealed or at least partially repealed their wealth taxes to exclude hard to value items?
One of my best friends lives in Tokyo and every time I have to think about taxes I get this little pang of jealousy at how sane and un-infested with rent seeking trashcans (intuit etc.) the Japanese system seems.
If you need the government to behave against the best interest of the people in order for your industry to exist maybe your industry shouldn't exist.