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April 15, 2007
Republicans Wish You A Painful Tax Day
So here's a pretty nice policy idea from John Edwards: if the IRS already has all the information it needs to do your taxes, as it does for about 50 million Americans, why don't we spare you the trouble and have the IRS do your taxes by itself? The IRS would then just send you "Form 1" in the mail, telling you how much you owe or how big your refund is, and you'd sign it and return it. Studies suggest that this would save Americans approximately 225 million hours of tax-related drudgery.
The folks at the National Review have objections, though. I particularly liked this from Steve:
I think one of the best things conservatives could do to make people realize just how bad our tax burden is would be to require all taxpayers to file and pay taxes quarterly. The current insidious system of employer withholding was designed to collect income taxes without taxpayers feeling the pain of writing a check.
Apparently he wants to build up government bureaucracy... so that people will get mad and want to tear down government bureaucracy. Republican governance at its best!
Now, I think the Republicans are right about the political situation here. If you make paying taxes painless, the most intense negative emotional experience associated with the tax system will go away. Not that everyone will suddenly be going "Hooray for taxes!" but the situation that instills the most passionate hatred of taxes will be gone, and resistance to taxation won't be as strong. Those of us who want to provide the revenues for national health care, free preschool, or any number of other useful benefit programs should be especially happy about progressive tax simplification proposals of this kind.
There are a couple other side benefits to the Edwards tax simplification proposal. It'd help poor people get deductions and credits that they might not know they're entitled to, like the EITC. Less than half of the eligible families with incomes below half of the poverty line know that they're eligible, and Hispanics are especially likely to be unaware.
Also, some poor people don't know about refunds, and the "Form 1" proposal would be especially beneficial for them. A friend of my brother was in a poor black North Carolina neighborhood some years ago, educating people about their taxes as part of a volunteer program. He met a woman who had been avoiding her taxes because she simply didn't have any money to pay. When he explained to her that doing her taxes meant getting a large refund check from the government, she didn't stop hugging him for a while.
April 15, 2007 | Permalink
Comments
I don't know who came up with 225 million hours. That is maybe 2.5 hours per 3 person family a year. I'd argue that it might be many times that, but I don't do the studies.
Posted by: Mudge | Apr 15, 2007 3:13:47 PM
From the Edwards site:
"Form 1 would save taxpayers an estimated 225 millions hours a year. [Goolsbee, 2006; Gale and Holtzblatt, 1997; Treasury, 2003; GAO, 1996]"
Posted by: Neil the Ethical Werewolf | Apr 15, 2007 3:19:03 PM
yes! in fact, maybe they should email it... and save probably 225 million pages of dead tree waste too!
Posted by: katy huff | Apr 15, 2007 3:27:56 PM
I might go along with the IRS mailing me a pre-filled tax form that I could then go over and amend if necessary. I'm just not convinced that the IRS already knows everything they need to about my life.
Also, I'd rather be responsible for whatever screwups there are on my tax forms than some overworked drone in a windowless building.
Posted by: Stephen | Apr 15, 2007 3:55:49 PM
Also, I'd rather be responsible for whatever screwups there are on my tax forms than some overworked drone in a windowless building.
No drones, software -- using the same W2, 1099, etc. data you use. There'd be no savings if it were done by humans.
Posted by: Davis. X. Machina | Apr 15, 2007 4:03:20 PM
That's sounds pretty much like what happens in the UK for people on a payroll. Pay As You Earn. Of course the UK's tax code is a hell of a lot simpler than the US's. For any non-payroll income, you describe it in a form and either work out the liability or ask the Revenue to work it out for you.
Posted by: Ginger Yellow | Apr 15, 2007 4:12:31 PM
Yeah, I was at the american bar foundation doing something else when the work on this was done. I couldn't believe it, but I was too young in tax payer years to realize just how your taxes are calculated. The IRs does, in fact, know everything already about most taxpayers and they could really use some time to fight the top 10 percent for what they don't know.
aimai
Posted by: aimai | Apr 15, 2007 4:14:32 PM
I might go along with the IRS mailing me a pre-filled tax form that I could then go over and amend if necessary.
It would be a lot simpler all around if they just computed your taxes and sent a refund or a bill. If you had any changes to make to it just file an adjustment.
Posted by: Pat Whalen | Apr 15, 2007 5:32:26 PM
Also, I'd rather be responsible for whatever screwups there are on my tax forms than some overworked drone in a windowless building. - Stephen
OTOH, as a conservative friend of mine points out, it's kinda ridiculous that the government expects you to fill out your tax forms (or have the money to pay someone to do it for you) and then holds you responsible for not knowing the details of tax-code, which it sometimes takes an expert to know.
E.g., you get confused about how to report certain income and mess up and all of the sudden the IRS is asking you to pay self-employment taxes even though you are not self-employed.
Certainly, such a proposal (I've been kicking around similar ideas in my head and was just gonna blog that someone needs to do something about tax-time), if the IRS does a good job with these forms, will do a lot for liberals and hurt conservatives, politically. Conservatives get a lot of support from people because they hate filling out their tax forms. If government were less annoying -- and the big sources of government annoyance are speeding tickets, blue laws and tax filing -- then people wouldn't mind big government liberals so much.
So of course, liberals should be formost pushing for reforms in areas which government is irritating. Good on Edwards for this idea then. So when will he start a campaign to push states to get rid of blue laws and speed traps (and those stupid "point systems" whereby I am still paying something called an "insurance surcharge" even though it's coming from the DMV in a speed trap heavy state -- whose speed traps did nothing to prevent its governor from getting injured by a hit and run driver -- in which I no longer live and for the life of me I can't figure out who's being insured for what by this insurance assessment)?
Just one problem with the automatic tax thing -- what about those on educational fellowships? These don't get reported to the IRS, yet you need to pay taxes on them. Actually, it sometimes happens that the IRS examines your returns and then asks for documentation of the income you've put down (as if you're lying about fellowship income if you've actually gone to the bother of reporting it -- doesn't questioning this sort of thing just encourage people not to report such income in the first place?), which documentation might have stuff on it that's none of the IRS's business ... or you put your fellowship income on the wrong line and the IRS, in spite of your writing down the income is from a fellowship, thinks you're self-employed and asks you to pay self-employment tax. The Dems. need to deal with this sort of thing -- because you can bet that people hit with these challenges in their still formative youth are gonna be that much more likely to become anti-tax conservatives.
Interestingly, this is one of those cases where perception's everything -- it would actually require government to be more "big brother" to do your taxes for you. But it would make government feel less like "big brother" and hence help alleviate exactly the sort of anti-gummint sentiment (sp?) that hurts us Dems.
*
Anyway, IIRC, ironically this make-big-government go down easier idea of automatic withholding was thought up by Milton Friedman.
Posted by: DAS | Apr 15, 2007 5:43:53 PM
Apparently he wants to build up government bureaucracy...
What he wants to do is make every taxpayer aware. Isn't that what you wish to do with your causes?
Posted by: Fred Jones | Apr 15, 2007 5:55:54 PM
Anyway, IIRC, ironically this make-big-government go down easier idea of automatic withholding was thought up by Milton Friedman.
That old bolshevik! Whouda' though?
If the Norquists of the world really wanted to make paying income axes hurt, so that we would rebel against the government that collects them, they could simply:
require their payment in specie,
in person,
once a year
without the system of with withholding,
...just as in the time of the Plantagenets.
Forward into the past!
Posted by: Davis. X. Machina | Apr 15, 2007 5:58:39 PM
Or following Fred's logic, require them to file weekly.
Taxpayers are well aware that they pay taxes. Making taxpayers file more often would just be making the system less efficient purely for spite. Although this suggestion does come from the house organ of the Unconservatives, people who violently *object* to making government smaller and more efficient and unobtrusive -- so this is all hardly surprising.
Posted by: Evan Goer | Apr 15, 2007 6:35:43 PM
Wow, what a blunt admission of the Republican philosophy that the purpose of government should be to make the people unhappy.
Posted by: Amanda Marcotte | Apr 15, 2007 6:40:35 PM
But this would eliminate one of the Great American Pastimes - figuring out ways to cheat on your taxes!
I'm all for this, and I've been advocating this for years. The real hatred that many folks feel about taxes isn't in the paying, its in the filing.
The more painless paying taxes is the more people can recognize it as the Patriotic Duty it is instead of the Pain-In-The-Ass bureaucratic file-filling mess we have today. There is really very little that is more patriotic than the dual tasks of filing your taxes honestly and completely and following that up by watchdogging the government like a hawk to make sure they're spending the money appropriately.
Posted by: NonyNony | Apr 15, 2007 7:00:36 PM
I think that something like this would make a great deal of sense in the context of a broad simplification of the Federal Income Tax, which really is absurd compared to similar taxes in other perfectly nuanced and wealthy countries. We voters, regardless of our political persuasion, would enjoy that immensely. Unfortunately, the Incumbant Party would hate it, because it would destroy a principle means for handing out goodies.
Simplification's twin, of course, is transparency. People should understand what they are paying, and how much they are paying. In detail. While that might not work out well fiscally for people who want to raise more tax revenue, it seems to me that it is hard to argue with the principle.
By the way, Eisenhower proposed doing away with employer withholding of wages. He argued that all taxes, whether on investment income or wage income, should be paid by the taxpayer each quarter. Again, the idea was more transparency, so that people really understand the portion of their income going to the government. What's the principled progressive case against that?
Posted by: TigerHawk | Apr 15, 2007 7:35:35 PM
By the way, Eisenhower proposed doing away with employer withholding of wages. He argued that all taxes, whether on investment income or wage income, should be paid by the taxpayer each quarter. Again, the idea was more transparency, so that people really understand the portion of their income going to the government. What's the principled progressive case against that?
Withholding started in the early 1940's, I think. When income tax rates started to move up, in part, to finance World War II, withholding became necessary to improve taxpayer compliance. When people file their tax returns each year, they are well aware of how much they paid including what they still owe or less any refund due. I think transparency is quite adequate in this context.
The top 1% of income earners already pay over 30% of all federal income taxes while the top 5% pay about 50%, and the top 10% pay roughly two-thirds. The bottom 50% pay 4% of income taxes. The bigger tax hit for most middle income taxpayers is payroll taxes which are automatically withheld from wages and require no filings or even record keeping except for the self-employed and those who may have held more than one job in a particular year and might be due a refund for excess FICA taxes paid. Income taxes could probably be eliminated for millions of additional people if replaced with a value added tax which would not require taxpayers to file returns, nor would the IRS have to prepare their returns. If people fell below a (much higher than current) income limit, no income tax would be withheld from their wages and no return would have to be filed. Problem solved. Those eligible for a refund related to the EITC should probably be required to file in order to mitigate the significant fraud associated with this program.
Posted by: BC | Apr 15, 2007 8:15:20 PM
Just one problem with the automatic tax thing -- what about those on educational fellowships? These don't get reported to the IRS, yet you need to pay taxes on them.
I'm guessing that to implement this proposal, you'd want to make the grantors start reporting the fellowships to the IRS. That shouldn't be such a big problem, right?
I heard that more of those used to be non-taxable in the pre-Reagan days. Since I've been making my living off of educational fellowships for the past 3 years of grad school, I've cursed him many a time.
Posted by: Neil the Ethical Werewolf | Apr 15, 2007 8:20:58 PM
Well, well. If it isn't the unapologetic Marcotte.
When, oh when will Marcotte apologize for persecuting the Duke team even when all of the evidence pointed toward their total innocence? The blinding hate, the prejudice.
C'mon....apologize already!
Between the Duke posts and her getting handed her head by the Edwards team, she's becoming little more than
a joke in the blogosphere.
Posted by: Fred Jones | Apr 15, 2007 9:55:41 PM
As far as the right wing is concerned, poor people not filing and getting their benefits is a feature, not a bug.
Posted by: beckya57 | Apr 15, 2007 11:03:00 PM
Since the pain of filling out your tax forms has nothing at all to do with the tax rate, I don't understand how increasing that pain would increase support for cutting taxes. Now, if they want to eliminate income taxes entirely, that's different, but that doesn't seem to be the mainstream right-wing position.
Posted by: KCinDC | Apr 16, 2007 9:38:16 AM
you'd want to make the grantors start reporting the fellowships to the IRS. That shouldn't be such a big problem, right?
You should have heard the outcry from universities and granting institutions when they decided to "encourage" them to report yearly earnings to students on fellowship ... even if you didn't mean to be sarcastic with your question, that question must be sarcastic, given the history.
I heard that more of those used to be non-taxable in the pre-Reagan days. Since I've been making my living off of educational fellowships for the past 3 years of grad school, I've cursed him many a time. - Neil the Ethical Werewolf
Fellowships, etc., became taxable in 1986. Cutting taxes to the rich with the first round of "tax reform" left the government with huge deficits and hence a ballooning debt. The compromise solution between the Dem. Congress and St. Ronnie was to raise taxes on those who could least afford it. Included in that tax increase known as "tax reform II" were taxes on fellowships and scholarships.
Phil English (R-PA) actually has been pushing to reverse this change for some time and last I knew it was starting to get traction, but Dems. have been loath to work with a GOoPer and the GOP has been loath to cut taxes for a constituency that tends to vote Dem. So the proposal's always "gaining momentum" and yet it never seems to go anywhere. Perhaps a quantum effect is at work?
Posted by: DAS | Apr 16, 2007 10:17:51 AM
I've got an even better idea. Flat Tax. Income taxes put the burden on the middle class who do most of the work, and it forces the government to balance a checkbook like everyone else instead of treating the public like milk cattle. (Hell, Congress won't even be able to vote themselves their annual pay raises)
Good parents don't give their kids allowances that cover the costs of *everything* they want: it's a tool to teach them how to be fiscally responsible. We could afford all the Christmas presents the constituents want even if we had lower taxes...government just needs to eliminate the waste and learn how to manage money like responsible adults.
Posted by: Eagle Talon | Apr 16, 2007 11:12:05 AM
Since the pain of filling out your tax forms has nothing at all to do with the tax rate, I don't understand how increasing that pain would increase support for cutting taxes. - KCinDC
You assume that (1) people are rational and (2) the GOP wants to decrease taxes per se.
While the GOP tells economic stories about "rational behavior", they aren't dumb enough to believe that crap -- otherwise, they wouldn't be able to so skillfully exploit irrationality to win elections. Also, the GOP wants people to hate government, because they figure they'll benefit with fewer regulations, etc.
When people are burdoned by government (e.g. doing their taxes), they hate government and begin to sympathize with the anti-government cause. Also, people think linearly -- lower taxes mean less government burdon, so they will indeed support lower taxes to lower the government's burdon, even if, in reality, such a change would have little effect on why these people are hating the government.
Posted by: DAS | Apr 16, 2007 11:47:11 AM
I have occasionally thought "it would be pretty good to go and work in the US for a couple of years" and then my brain retrieves my Good Reasons Why Not list:
1. Having to file your own tax return every year
2. The risk of getting ill and having to deal with the healthcare system
3. The immigration service
4. Having (probably) to drive everywhere
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