One of the features of President Trump’s tax reform proposal is to eliminate all tax deductions except for home ownership and charitable contributions. A side benefit of removing all the obscure deductions is making it simpler to file a tax return. But it can get much, much simpler.
Many lower-income Americans already file the 1040EZ form, and there are even free tax preparation sites to file it, but it still requires entering data–ironically, data that the IRS typically has in its files.
In 2013, the Washington Post fact checked Rep. Dave Camp’s citation of a 13-hour average to comply with the tax code and complete all the required forms. It gave Camp a “prized Geppetto Checkmark.” Business owners, the self-employed, people who have experienced a status change (physical address move, home sale, marriage, divorce, birth of a child, etc.) can take far more time to complete their taxes, even using tax prep software. It took me about 15 hours to get mine done, plus a few calls to the accountant.
In Japan, completing a tax return typically takes 5 minutes. The government tracks how much money you made, sends you a form, and if you agree with it, you do nothing. If you disagree, you set up a visit to the zeimusho–the local tax office–to discuss your return. Small business owners have to complete a return, but the rules are fairly straightforward.
In Britain, you only need to file a tax return “if you are self-employed or have a paid job but earn some money on the side from freelance or casual work,” or if you meet certain other criteria such as an income over £100,000. But most Brits file online via a government website that has all their data.
In the U.S., employers, banks, and even health insurance carriers are required to submit voluminous data dumps to the IRS, which uses that data to determine if you have made an error on your return. But you have to complete the form from scratch every year–unless you use tax prep software or an online service. This is mainly because our tax system is so ridiculously complex and ever-changing.
The IRS could complete the return for you, but might miss something important. If Trump’s reform plan goes through, the only things you would have to track are charitable contributions. and potentially child care expenses. Medical expenses, local and state taxes, and all the ridiculous nooks and crannies of self-employment (try getting a K-1) would mostly go away.
Wouldn’t it be nice if millions of Americans could simply get a postcard (or an email, or text message) every year, and do nothing? How many IRS employees would this eliminate or free up to do other things?
The benefits of reform are great if they put money in your pocket. Looking at the plan, I know I’d save quite a bit. But bringing American tax preparation into the 21st century might be a bigger benefit in the long run.