Why We Hate Taxes, and Why Some People Want Us To

GnaGnaMan

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That said, even if you do understand and appreciate the role of the government in your life, the process of actually paying your taxes is comically difficult in the United States. This is not an accident. Indeed, while many may be familiar with the idea of a nudge, the complexity of tax filing can be thought of as an example of nudge’s evil little brother—a “sludge.” That is, filing taxes is a process that is (arguably intentionally) more complicated, confusing, redundant, and annoying than it needs to be. For example, much of the information you provide when filing your taxes is information the federal government already has, from your name and address to your salary (in the comfortable majority of cases). Given that, why can’t tax filing be made simpler, by eliminating redundancies and making forms less confusing? Surely that would save all of us time and money.

The reality is that (at least) two politically powerful groups have a vested interest in making tax filing as “sludgy” as possible: tax preparers and anti-tax interest groups intent on lowering taxes. Why? Well, tax preparers clearly benefit from an intentionally complicated tax filing process—it is good for business. In 2003, the IRS cut a deal with tax preparation companies like Intuit (TurboTax) and H&R Block, whereby it agreed to not create their own free filing system if those companies provided a free-filing option for lower-income Americans. Earlier this year the agreement was almost made permanent by Congress after lobbying by these same interest groups. This proposal should worry taxpayers. ProPublica recently uncovered the ways TurboTax and H&R Block actively hid free file options in search results. With only 3 percent of eligible filers taking advantage of the free file option, this might explain the exceptionally low take up rate.
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https://behavioralscientist.org/why-we-hate-taxes-and-why-some-people-want-us-to/

The only things I know about what it's like to file a tax return for the ordinary US citizens come from watching stuff like The Simpsons. It certainly always seems weirdly difficult, starting with the fact that some ordinary employee like Homer would have to file, anyways.

Is this what that's all about?
 
GnaGnaMan said:
Is this what that's all about?
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Yeah, pretty much. Canada is way better than the US in this regard, but from what I understand, still worse than a lot of other countries. At least we haven't enshrined accounting corporations in our laws.

There's a lot of anti-tax sentiment out there. My Dad used to think that paying taxes by withholding from your paycheck was a bad idea, because it made it too easy to ignore how much you were actually paying. He thought that if everybody had to write one big check to the government every year, they'd be a lot more aware of how much they're paying, and a lot more concerned about how that money was being spent.
 
It used to be hard. Now there are cheap, even free, tools on the interwebs to file them. I can import my W-2, then it takes me maybe an hour to mostly sit there and click "no, no, no".
 
Horatius said:
Yeah, pretty much. Canada is way better than the US in this regard, but from what I understand, still worse than a lot of other countries. At least we haven't enshrined accounting corporations in our laws.

There's a lot of anti-tax sentiment out there. My Dad used to think that paying taxes by withholding from your paycheck was a bad idea, because it made it too easy to ignore how much you were actually paying. He thought that if everybody had to write one big check to the government every year, they'd be a lot more aware of how much they're paying, and a lot more concerned about how that money was being spent.
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You can do that. However, you must make quarterly estimated payments. If you underpay by $1000 or more, you have to pay a penalty. I actually do that, give myself a micro-loan every quarter basically. And you can make payment by credit-card, for about 1.8%. It can make getting some minimum spend rewards easier.
 
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Easy or difficult it's still wasted work. The IRS still calculates all your taxes anyway to make sure your submission is correct. So why make us bother?
 
TragicMonkey said:
Easy or difficult it's still wasted work. The IRS still calculates all your taxes anyway to make sure your submission is correct. So why make us bother?
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For people with nothing more than a W-2 job, with no other income sources, that aren't itemizing, it really should basically be: here is what your employer deducted, here is how far it was off by. If correct press "OK". For the self-employed or people with taxable capital gains its always going to be more complicated. You have to report what your receipts and expenses are to come up with your taxable income. In fact as someone who has had 3 income sources in a year... it still isn't that hard if you keep track of everything. Our tax code is crazy complicated, written to create loopholes and keep accountants employed but mostly just when it gets into large international corporations.


ETA: oh and I've talked to an auditor once. Actually no, the IRS doesn't really do that unless they audit you.
 
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lobosrul5 said:
It used to be hard. Now there are cheap, even free, tools on the interwebs to file them. I can import my W-2, then it takes me maybe an hour to mostly sit there and click "no, no, no".
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The article mentions that. You are one of 3%.
 
GnaGnaMan said:
The article mentions that. You are one of 3%.
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Oh, no actually I pay a small fee. The free ones don't do quite everything I need :(

I had to read the article to figure out what you mean. And really its coming from two different directions, knowing where our money goes has little to do with how easy or hard it is to file. Thats well obfuscated and easy to fudge. Since we spend more on social security/medicare etc than we take in from FICA. But FICA doesn't go to the general fund, its just borrowed from... which is a complete legal/political fiction.
 
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lobosrul5 said:
ETA: oh and I've talked to an auditor once. Actually no, the IRS doesn't really do that unless they audit you.
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Then how do they catch mistakes? I've never been audited but twice I've made math errors and once I forgot the exact amount of a source of income, and all three times they sent a letter with a check for the extra or a demand for what was lacking. Somebody there is doing something.
 
TragicMonkey said:
Then how do they catch mistakes? I've never been audited but twice I've made math errors and once I forgot the exact amount of a source of income, and all three times they sent a letter with a check for the extra or a demand for what was lacking. Somebody there is doing something.
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I guess what he meant was they don't know your entire tax situation. If its income thats reported under your SSN or EIN they will know. If you make an error on your return, they will know. But they don't necessarily know if some deduction you took really applied to you or not without auditing you. They don't know your entire tax situation. The more out-of-whack things appear the more likely you are to get flagged for auditing though.
 
I don't do my taxes, as we have some self employment tax. A pofessional does the tax. But a further complication is resolving the subsidy for health insurance. If we came up with a Medicare that was a reasonable rate for all, would not need to mess with subsidies and calculations.

I am on Medicare but my wife is not, to a year after we kick out Trump.
 
lobosrul5 said:
It used to be hard. Now there are cheap, even free, tools on the interwebs to file them. I can import my W-2, then it takes me maybe an hour to mostly sit there and click "no, no, no".
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I can't help but point out the irony that you're defending the current system by saying "look how easy it is to use software and go through a process that still takes an hour."

The complaint is that taxes in the US are unnecessarily complicated for people, mostly because of the actions of lobbying. And that's a statement I think is absolutely correct. Is it easier than manually doing the taxes? Yes. Is it cheaper than having to pay an accountant? Absolutely. But, it's still much more complicated than it should be, and the article posted in the OP explains why.
 
Tero said:
I don't do my taxes, as we have some self employment tax. A pofessional does the tax. But a further complication is resolving the subsidy for health insurance. If we came up with a Medicare that was a reasonable rate for all, would not need to mess with subsidies and calculations.

I am on Medicare but my wife is not, to a year after we kick out Trump.
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I made a little over poverty level last year and got a $9,000 rebate from the feds. It covered virtually my entire premium amount. It doesn't work if you make *less* than the poverty rate - at that point you're supposed to be signing up for Medicaid. So now I need some more income this year to bring me up to $14K. I'm a caregiver for my mom, work P/T and have few expenses but the health insurance was killing me. I could probably live on minimum wage except for the health insurance. I'm in the "gig" economy right now and wonder what the long-term trend is going to be on F/T jobs with benefits.

It's nice that Medicare can make you look forward to turning 65! Aging has upsides which make the downside a bit more bearable.
 
It's really not complicated or difficult. You just follow one line of instructions after the other. Every line tells you exactly where to find the information you're supposed to put in there (like "form W-2, box 12"), or which other two lines to add/subtract/multiply/divide. Then you just write it in and go to the next line. It would be hard to come up with something simpler than "look at this, and do this one-step operation with it".

What it really is is just tedious... in a culture where tediosity gets falsely equated with complexity and difficulty. This puts the tax preparation industry in the odd position of taking advantage of, and thus having an incentive to keep fostering, not actual difficulty but a popular image of difficulty.
 
lobosrul5 said:
You can do that. However, you must make quarterly estimated payments. If you underpay by $1000 or more, you have to pay a penalty. I actually do that, give myself a micro-loan every quarter basically. And you can make payment by credit-card, for about 1.8%. It can make getting some minimum spend rewards easier.
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Yes, but you misunderstand what my dad wanted: One payment, not quarterly. One Big-Ass Cheque. And he wanted this to be mandatory, for everyone in the country, not just an option that some people might take.
 
I was busy with work and just filed my taxes the same way as last year. And,
I get a letter from the IRS stating I owe twice as much in taxes, another 3K a
year. I forgot about the tax law changes passed a year ago. So when I carefully
redid the form and read the instructions, I found my status and my deductions
had changed. A bit steep for someone under the average in income, but it won't
break the bank.

I use Libreoffice tax software in the form of an imported Excel spreadsheet from
this web site. Pretty darn accurate, except it has a tendency to round pennies
into dollars.
 
Solitaire said:
I use Libreoffice tax software in the form of an imported Excel spreadsheet from
this web site. Pretty darn accurate, except it has a tendency to round pennies
into dollars.
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In U.S. tax law, all dollar amounts (incomes, withholdings, etc), are supposed to be rounded to the nearest dollar.

ETA: For personal income tax, at least. I can't speak to other forms of tax.
 
If they ever eliminated withholding and made everybody pay quarterly like independent contractors, nobody would ever ask why we hate taxes.
 
lobosrul5 said:
You can do that. However, you must make quarterly estimated payments. If you underpay by $1000 or more, you have to pay a penalty. I actually do that, give myself a micro-loan every quarter basically. And you can make payment by credit-card, for about 1.8%. It can make getting some minimum spend rewards easier.
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Underpayment by $1000 seems low - in the past I have underpaid by multiple thousands and didn't pay a penalty. I may have sent a letter saying it was from a stock sale that I thought the broker was going to pay the taxes on.

As I no longer work, this year I paid all my taxes in April. They hit me with a "civil fine" for doing that. However, based on what I owed, the fine was worth it. I think I calculated I had made about 3x what the fine was over the year I kept my tax money.
 
3point14 said:
This is all madness to me.
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The IRS is either mad or it is staffed by people who are susceptible to "lobbying" by tax preparation companies like Intuit (TurboTax) and H&R Block.

The Australian Taxation Office wants as many people to do their own taxes as possible. That way, they are less likely to claim all of the deductions that they are otherwise entitled to. To that end, they are always looking for ways to simplify doing your taxes (one year they even tried a telephoning your taxes in system). Their current on-line tax filing system is super easy.
 
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Your income bracket helps determine if they are going to bother with an audit a lot. Richie Rich. Tries to report he took huge deductible losses and it looks like uncle Sam is about to be shorted 200 grand, lets look. Ghetto Bill makes 6G a year and doesn't bother to file for five years, the gov isn't going to get much from a guy with no assets.

When I was last there the law said no filing for 3 years could get you jailed. So every 3rd year I sent them a form and knowing full well I get no money returned I didn't care how many errors it had. The last one wasn't even with copies of documents they demand. State wouldn't jail so nothing for them. Most of my neighbors didn't file anything, ever and didn't worry a bit. Rented rooms and a bag of clothes, a tv and phone for most. Our id card rarely had a correct address.
If the guy lost it all he could replace it for a hundred bucks, less at the bar for a month...

We made money, mostly legally, but just paying sales tax at stores was a big enough hit, child support hit a lot of us taking away any mobility and it wasn't easy for all just getting by. No way we could give more.
 
psionl0 said:
The IRS is either mad or it is staffed by people who are susceptible to "lobbying" by tax preparation companies like Intuit (TurboTax) and H&R Block.
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Well, not all mad, but it's Congress, not the IRS that limits the IRS from doing a prepared tax assessment. Also, I think that if those tax preparation companies did try to influence an employee, it would be called bribery, or some sort of ethics violation, rather that lobbying.

It would require a few changes, the first being income reporting changes. I want to say that employers have until June to submit the W2 information, but people can file early February.
 
Horatius said:
There's a lot of anti-tax sentiment out there. My Dad used to think that paying taxes by withholding from your paycheck was a bad idea, because it made it too easy to ignore how much you were actually paying. He thought that if everybody had to write one big check to the government every year, they'd be a lot more aware of how much they're paying, and a lot more concerned about how that money was being spent.
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In the US, tax withholdings from paychecks started in 1942. The main purpose was cash flow. The treasury needed some cash, and war bonds weren't cutting it. Also, your dad has a point. It did allow the raising of taxes in such a manner that people wouldn't feel the bite at the end of the year. When you ask people, again in the US, how much they paid in taxes, they will likely tell you something like, "well, I got a refund" and ignore the numbers behind it. Recently, the Taxpayers Advocate, an arm of the IRS, fell into this mental trap too when they reported that refunds were down this year, and ignoring the math behind it.
 
Leftus said:
Well, not all mad, but it's Congress, not the IRS that limits the IRS from doing a prepared tax assessment. Also, I think that if those tax preparation companies did try to influence an employee, it would be called bribery, or some sort of ethics violation, rather that lobbying.
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According to the OP:
In 2003, the IRS (not Congress) cut a deal with tax preparation companies like Intuit (TurboTax) and H&R Block, whereby it agreed to not create their own free filing system if those companies provided a free-filing option for lower-income Americans. Earlier this year the agreement was almost made permanent by Congress after lobbying by these same interest groups.
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https://www.congress.gov/bill/116th...7?q={"search":["taxpayer+first+act"]}&r=1&s=1

Yes, the IRS did enter into an agreement with the Free File Alliance that the IRS would not compete with the FFA in the prep of taxes, so long as those members abide and provide a free filing solution. But it's Congress, not the IRS, who is trying to codify it into law. That is where the lobbying is happening.

To the best of my knowledge, there is no movement internally to create such a system. I'm not sure that the state of the art, 1960's computer code could handle it.
 
Here we get our tax forms already filled out from the government, and all you have to do is make any adjustment they didn't catch then send it in.

On mine, there has never been any need of adjustments. All my income and deductibles have always been there. Sending in my tax form is as quick as clicking a button.
 
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Leftus said:
https://www.congress.gov/bill/116th...7?q={"search":["taxpayer+first+act"]}&r=1&s=1

Yes, the IRS did enter into an agreement with the Free File Alliance that the IRS would not compete with the FFA in the prep of taxes, so long as those members abide and provide a free filing solution. But it's Congress, not the IRS, who is trying to codify it into law. That is where the lobbying is happening.

To the best of my knowledge, there is no movement internally to create such a system. I'm not sure that the state of the art, 1960's computer code could handle it.
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Do you think Turbotax gives the IRS paper forms?

ETA: Of course not. Wasn't trying to be snarky. I think about a third of the software is more than 2 or 3 releases behind.
 
Here, unless you are self-employed (or getting unreported income from non-salary/wages) or want to claim on donations, the IRD will process your Tax based on the information your employer gives them, along with any Taxable investments reported to them, and then either send you a check or a bill.

Taxes done the right way.
 
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slyjoe said:
Do you think Turbotax gives the IRS paper forms?

ETA: Of course not. Wasn't trying to be snarky. I think about a third of the software is more than 2 or 3 releases behind.
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I'm talking about the general state of the code that supports the tax system. It's old, and written in a language (Assembly and cobol) that is very difficult to support.

https://www.bloomberg.com/opinion/a...mputer-system-is-the-oldest-in-the-government

https://www.npr.org/2018/04/20/604106157/irs-computer-glitch-caused-by-master-file-issue

And it's not likely to be replaced anytime "soon." The roadmap is a good 5 years out. The problem is not replacing it, but doing it seamlessly.
 
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