Recently CBS Sunday Morning published a story on the idea of automating the preparation of our tax returns. This is not a new idea. I hope it never becomes law.
Sunday Morning interviewed a Stanford professor named Joseph Bankman. Bankman developed a program designed to have the systems already in place pre-fill our tax returns to save us all time, stress, and in an ideal world, money. He tried, through California’s legislature, to make this program (or one like it) the way Californians file their tax returns, but the effort failed thanks to opposition from corporate lobbyists.
If you’ve read any of our other posts in this blog, you’ll know I’m not one to defend big corporations and their lobbying efforts. But in this case, they make a valid point. They declined a request from CBS for an interview, but offered a statement: “Self-determination powered by an individual’s active participation in the tax preparation process is the backbone of the American tax system.”
That might sound a little
Some countries, like Britain and Norway, use a “Pay As You Earn” automatic tax collection process. But many others do make residents file tax returns. Those that do typically have filing requirements— as the U.S. also does, in fact— which limit the number of people who must file a return.
Of course, the government does know about a lot of our income well before we tell them about it in our returns, but the government doesn’t always know how much of it is taxable, or at what rate. Our tax returns fill in those gaps. Under the current system, the IRS does not have the resources to collect all of this data without our participation. And they say as much in this piece by CBS.
We could all benefit from dedicating more time to monitoring our income and expenses and participating in the preparation of our returns. If you think you can hand a shoebox of papers to a tax preparer and expect that you’re not going to end up paying too much, well, I hate to say it, but you deserve to.
As noted above, in the CBS story, it’s suggested that eliminating our participation would be beneficial because the tax code is too complicated and doing so would save us all time, stress, and money. This is the premise when politicians claim they’re going to pass a law simplifying the tax code, too. Ronald Reagan said it. So did Donald Trump. We’re going to be able to file our returns on a postcard. It sounds good, and it does win votes, but it’s not reality.
The tax code is too complicated. But this is because it’s the American way to try and game the system, and every time someone tries a new end around, the IRS has to make a new rule.
Would it be possible for the US Government to take away our ability to participate in the process? Probably. I value all the rights we enjoy as American citizens, but this one especially. The IRS does not have the same incentives we do to ensure we pay as little as we legally have to. Do we really want to give them all the power over this determination? I sure don’t.
So as April 15th approaches, consider yourselves lucky to have this privilege. It’s a central part of your freedom.
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