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June 27, 2007
Viva Le Tax Simplification
It may indeed be true that Wyden is exaggerating, and even a very smart tax reform will leave some number less than all Americans completing their taxes in under an hour, but that number could still be quite a bit larger than it currently is, which makes it a goal worth striving towards. And lord knows we're not near the upper end of easy tax payments. Not only is the structure itself overly complicated, but it's been two decades since the last significant clean-up of the tax code. The accumulated loopholes and detritus are long overdue for examination.
Additionally, tax simplification is the sort of policy which would make a great many people very happy at just about no extra cost to the government. Which makes it all the more important to do. Most of the great gains in policy are to be made addressing the needs of the worst off. But most of the votes come from the massive middle. For these folks, the country actually works fairly well, if not perfectly. To institute policy that will substantially improve their existences through material transfers is, given their size, prohibitively expensive and politically difficult. But policy can improve their lives in other ways.
To simplify their dealings with government and make their lives at tax time 2008 simpler than they were during tax time 2007 is both (conceptually) easy and substantively worthwhile. And it can be a good that increases middle class support for a policy that also includes more serious reforms that aid the poor, like simplification and unification of the forms that govern benefits (see Max Sawicky's proposal here), getting the IRS to do the taxes of 50 million Americans themselves (see Edwards' proposal here), or taxing work income at the same rate as wealth income (see Wyden's proposals here). Simplification can work in service of progressive reform.
And finally, the perception of a complex tax code is bad for liberals. The more folks look at the loopholes and exemptions and deductions and forms and judge -- correctly! -- that the system can be gamed by those with the money and time to cheat, the more they'll feel like suckers for paying their fair share, and the more receptive they'll be to tax cuts and the dulcet tones of Grover Norquist. A system that obviously treated everyone the same would leave fewer fols feeling like dunces for cooperating with it.
June 27, 2007 in Taxes | Permalink
Comments
what the fuck are you smoking?
let's disregard the fact that it sounds like youre suggesting a flat tax would be beneficial somehow.
when the economy is structured in such a way that inflation is an inevitable consequence of population growth (since our GDP is based fundamentally on labor output, which is increasing), how fucking STUPID do you have to be to want to tax wealth income and labor income at the same rate? that just accelerates the consolidation of wealth into the hands of the few.
why is a complex tax code bad for liberals? ai dont get it. have you just drunk the right wing kool-aid or what?
Posted by: rageahol | Jun 27, 2007 1:40:38 AM
A lot of people make a living on the complexity of the tax code, so there's one special interest that won't be too happy about a simplified system. And isn't a complex gameable tax system part of the American Dream, where one way we'll all be rich and able to afford the services of Dewey Cheatham & Howe to hide our gold?
Why else would there be any support for tax cuts on the upper brackets, when 98% of us don't qualify? Everyone thinks that one day they will, it seems: few realize that by doing that, they're kicking the ladder out from under themselves.
You can't please everyone. While I think everyone agrees things could be simpler, whose loophole gets dropped on the floor?
Posted by: paul | Jun 27, 2007 2:15:15 AM
what the fuck are you smoking?
The pot that helped Ezra endure the painful experience of doing his taxes.
What about a flat-progressive tax. Just give us a straight graduated system that I can fill out in 5 minutes -- online.
Posted by: Jason | Jun 27, 2007 2:39:48 AM
Last year, I couldn't use 1040EZ, because 1040EZ doesn't give me the ability to deduct student loan interest.
Let's examine that tax deduction. If you've got (say) 50,000 in student loan debt, then you're paying 3,000 a year in interest. The student loan interest deduction enables you to subtract that 3,000 from your taxable income. Would you want to get rid of that deduction?
Lots of people say they want to cut the pork from government - but when forced to choose an actual program to cut, they demur. They realize that the programs are genuinely valuable and worth paying for.
I feel the same way about tax deductions. Many of them are there for a reason. They don't just help the rich.
Posted by: Josh Yelon | Jun 27, 2007 2:57:23 AM
If all lawmakerers were required, by law, to complete their own tax returns themselves, without professional help, the tax laws would be simplified in very short order.
Posted by: joel hanes | Jun 27, 2007 3:25:46 AM
Surely the first time the phrase "dulcet tones" was ever followed by "Grover Norquist", ever. Either in print or pixels.
Posted by: sangfroid826 | Jun 27, 2007 6:08:12 AM
The two simplest and most obvious changes to hte US system.
1) All taxes must be paid on April 15th. No with holding, no payroll deductions, show up and cough up the year's money for Uncle Sam. (Yes, this is actually done, in Hong Kong. Pay in cash, too.)
2) Election Day is moved to the first Thursday after April 15th.
Posted by: Tim Worstall | Jun 27, 2007 7:03:12 AM
This is ridiculous. First, the most difficult task in filing income tax forms is gathering up all your personal information -- W-2, 1099, etc. "Simplifying" the tax code isn't going to make that any easier. Second, for most people filling out a Form 1040 isn't all that complicated -- number of dependents, W-2 income, standard deduction, look up the tax in the table, done. It gets complicated only when you start itemizing or looking for ways to reduce your tax. Third, even if you take the hard way, software like Turbo Tax and its rivals do all the work for you, except (circling back to the first point) understanding your life and your finances and having all the paperwork together.
This point about your paperwork cannot be overemphasized. It's a hassle to keep, find and add up all your charitable contributions. But how, short of eliminating charitable-contribution deduction altogether, can that task be lightened? They've already given us the standard deduction. Similarly, keeping records so you can calculate your cost basis in your house or mutual funds is a headache. But surely only your capital gains (the difference between your cost basis and the sales price) should count as taxable income; you can't measure the capital gain without some way to determine how much you paid.
I sometimes think that the IRS should simply calculate your tax -- it gets almost everyone's W-2 and 1099 data electronically -- and just send you a filled-in 1040 with the instructions, "As you see, we calculate your Federal tax as $3000, and your total withholding as $3250. You may override this assessment by filing your own Form 1040 by April 15; otherwise, we will send you a refund check on May 15." But then what would people complain about?
Posted by: Stuart Eugene Thiel | Jun 27, 2007 7:43:08 AM
I agree with the commentors (and Kevin) - I think Ezra's being a little dreamy about the tax issues involved (which is why we look to you for healthcare information, and less for say, film reviews, or tax olicy debates. Specialization, baby, specialization). The tax code is a mess, but the part that needs reforming most is taxes on corporations, and that's a hard issue where a lot of people with obvious vested interest work very hard to protect them (and here comes campaign finance reform, bringing up the rear). Thanks to the absurdities of Republicans and the Bush Administration (not to mention the labor market keeping so many people in such low paying service jobs), millions and millions of individuals now pay essentially no taxes anyway. How are you supposed to simplify that? Tax simplification is a slogan. Actual tax reform is painful and hard. And I don't think a lot of progressives, for all their brave talk, really have the stomach for that fight. Not yet, anyway.
Posted by: weboy | Jun 27, 2007 7:51:31 AM
Stuart is right. I'm tired of hearing about tax simplification, which inevitably turns out to be a cover for making taxes even less progressive. "Flat tax" is a popular buzzword, but the number of tax brackets actually has nothing to do with the complexity of filling out taxes, because everyone either looks up the tax in a table or calculates it with a computer program. There could be an infinite number of tax brackets (and there probably should be, to smooth out pointless jumps) and taxes wouldn't be any more complicated. And Wyden's "flat" tax apparently still has three brackets, so what's flat about it? He's reduced the word to pure meaningless marketing.
Taxing rich people's income (much of which comes from capital gains) the same way we tax poor people's income (mostly wages) is a good idea, but there's no need to bring in "flatness".
Posted by: KCinDC | Jun 27, 2007 8:15:30 AM
And this is why I include actual policies, rather than theories. Go read them, and then tell me it can't be done.
Posted by: Ezra | Jun 27, 2007 8:53:15 AM
Let the iPhone engineers rewrite the tax code.
Posted by: Gary | Jun 27, 2007 9:15:25 AM
If you don't keep your financial records, someone else will. And they won't do as good a job as you would do. (Hard voice of sad experience.) 40 years after you start working you will want to verify your earnings for a pension program. If your original employer is even still in business, they certainly will not admit to still having your timeslips from back then.
Smart people will keep their financial records in a way that makes it easy to break out the info for their own purposes. Dumb people who don't do that will pay a "stupidity tax". That's a tax no legislature ever enacted, or can ever repeal, and it's in effect at all times.
Taxes are a way of making public policy. Some of these policies are bad, and should be changed. The complexity (or simplicity) of the regulations has nothing to do with whether the policy is good or bad.
Posted by: serial catowner | Jun 27, 2007 9:33:31 AM
I think you are spot on with your analysis of democrats using taxes as an election issue. It costs nothing and would let us steal an important issue from republicans. And you're right that ultimately an easy tax system helps democrats. (Plus is a sweet addition to our everyman working class meme)
Posted by: Phil | Jun 27, 2007 10:41:07 AM
People who complain about tax simplification have yet to provide an argument for why we should not do it. I agree that a lot of times people use simplfication as a buzzword for making taxes less progressive but that only furthers my point that democrats should takeover the issue. If we are in charge of the debate then it allows us to score a political victory, gain a winning election issue and ensure that the tax code stays progressive and fair. Imagine republicans on the defensive trying to argue against tax simplification
Posted by: Phil | Jun 27, 2007 11:13:32 AM
Educational credits & deductions, energy credits, AMT vs Regular, health savings plans - there are plenty of minor bits to clean up.
All it would take is a strong, effective, executive branch pushing a functional Congress through some very detailed negotiations in good faith.
This administration?
(& don't forget that the 1986 simplification ended up being the greatest increase in complexity in the history of taxation)
Posted by: Downpuppy | Jun 27, 2007 12:45:49 PM
Let's examine that tax deduction. If you've got (say) 50,000 in student loan debt, then you're paying 3,000 a year in interest. The student loan interest deduction enables you to subtract that 3,000 from your taxable income. Would you want to get rid of that deduction?
I want to get rid of it (actually, I don't really care) because I'm phased out and can no longer take the deduction. If you've got more than $50k in student loans (and I'm roughly in that neighborhood), it's time to start making enough money so that you're past the point where you can still take the deduction.
Posted by: Seitz | Jun 27, 2007 1:11:09 PM
And I should add, unless you're making less than something like $50k per year, you can't take the full deduction. Past a certain threshold, you can only deduct a percentage until you reach gross income level where you are phased out completely.
Posted by: Seitz | Jun 27, 2007 1:12:37 PM
Folks, a complex income tax IS bad-- because you are forcing ordinary people to either spend a lot of their precious time figuring out inscrutable tax forms and engaging in legal interpretation that can be very difficult, or you are forcing them to hire people whom they can't afford to do this for them. Plus, you are forcing them to keep records of unimportant transactions for years and years in case there may be an audit.
It is true that simplification can be a cover for regressivity. But that isn't an excuse for maintaining a system that creates a huge pain in the rear end for ordinary Americans. And that pain gets worse every year, because whenever anyone proposes a subsidy for the middle class or the poor, it is always handed out in the form of tax deductions and credits, which make the tax system even more complicated, rather than simply allowing the government to identify beneficiaries and send out checks a la Social Security.
The fact is, inconveniencing poor and middle class Americans is just as bad as unfairly taxing them. If wealthy folks and corporations who can afford accountants have to do lots of tax compliance work, that's fine with me. But it is an outrage that ordinary Americans have to engage in such an intrusive and oppressive process-- with big penalties if you get it wrong-- every year.
Posted by: Dilan Esper | Jun 27, 2007 8:29:14 PM
Dilan, you're missing the forest for the trees. "Ordinary people" in ordinary circumstances do not encounter the arcana of the tax code. All of the complexity in tax law can be avoided if you simply pay your taxes, taking advantage of common tax breaks like mortgage interest deductions, but passing on your sister-in-law's advice to deduct your kitchen remodeling expenses because a nice kitchen helps you do a better job at work. If you're out on some legal limb, you're almost certainly trying to get away with something.
If your problem is truly ordinary, it's come up a hundred times before and there's a clarifying rule now. If there's true uncertainty about a tax rule and you make a good-faith guess about what it means but you happen to be wrong, you'll have to pay the tax you should have paid, and probably interest, and that's fair. It's unlikely that you'll be penalized. On the other hand, if you are gaming the system, you pays your money and you takes your chances, but don't whine about the expense and don't whine if you're caught.
There are lots of people whose brains freeze at the sight of a form or the prospect of addition and subtraction. I don't mean to mock them, but it's really pointless to amend the tax code on their behalf. No simplification of the tax code will reach them. They'll need direct help like -- hark! -- the IRS's offer, in the middle of page two of Form 1040, to calculate your tax for you.
Posted by: Stuart Eugene Thiel | Jun 27, 2007 9:46:50 PM
On the off chance that anyone here attended today's AMT hearing at the Senate Finance Committee, it eventually turned into a discussion of fundamental tax reform. A lot of attention was paid to Prof. Graetz's plan for a scaling back of the income tax, reduction in corporate tax rates, and imposition of a low level consumption tax.
Whatever gets done, it realistically won't get done until 2009-2010.
Posted by: staff | Jun 28, 2007 12:15:54 AM
If your problem is truly ordinary, it's come up a hundred times before and there's a clarifying rule now.
True. However, FINDING OUT WHAT THAT RULE IS can be hard. And keeping the records to figure out how to apply it is non-trivial too.
An easy for-example. I moved; my employer compensated me for some (qualified) moving expenses; I don't feel like itemizing deductions to deduct those expenses. Where do I report the income?
I'm sure there's a rule, but I bet it will take you at least an hour to find it.
Posted by: SamChevre | Jun 28, 2007 8:35:23 AM
Sam: 7 minutes. http://www.irs.gov/publications/p521/ar02.html#d0e1521
Posted by: Stuart Eugene Thiel | Jun 28, 2007 11:18:59 AM
maybe VITA needs more publicity. that's where i've gotten my taxes done, for free, by trained professionals, for the past two years. no dicking around with the "arcana" of the tax code. just accessible, free tax help for those on the lower end of the income spectrum. if you're making more than their cutoff (38k/yr for an individual, more for families) then you can afford to go and fucking pay someone to do it for you if its that big a deal.
Posted by: rageahol | Jun 28, 2007 11:28:10 AM
Stuart:
I can think of lots of tax systems that would allow people not to have to keep detailed records for years, or fill out complex forms, or hire H&R Block, or deal with the threat of harsh IRS penalties, including:
1. Consumption taxes
2. Value-added taxes
3. Wage taxes assessed on employers, not employees
4. Postcard-style revenue taxes with no deductions
The fact is, however rich people and businesses are taxed, there's no justification for burdening the poor and middle class the way current income tax system does.
Posted by: Dilan Esper | Jun 28, 2007 7:14:58 PM
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