The Turbo Tax Paradox
Like many of you, I just finished my 2011 tax return. Counting worksheets, it was 59 pages long.
It occurs to me that our current insanely complex tax rules are made possible by technology. Yes, computer software makes filing easier (both for professionals and civilians). But that may be the problem.
The relative ease of filing, made possible by programs such as Intuit’s Turbo Tax, also makes it easier for Congress to write incomprehensible tax law.
Have you ever read, for example, Form 6251, the paperwork millions of middle-class households must complete just to figure out whether or not they owe the dreaded Alternative Minimum Tax? The IRS instructions for the form are 12 pages long.
Here, in part, are the instructions for Line 11:
Your ATNOL for a loss year is the excess of the deductions allowed for figuring the AMTI (excluding the ATNOLD) over the income included in the AMTI. Figure this excess with the modifications in section 172(d), taking into account your AMT adjustments and preferences (that is, the section 172(d) modifications must be separately figured for the ATNOL).
In truth, if voters actually had to navigate this gibberish, we’d have a revolution that would make the tea party look like the League of Women Voters. But we don’t. In 2009, 92 percent of us got help, either from a third-party preparer or tax software, the IRS estimates.
We spend $59.95 for software, mindlessly answer questions that often seem entirely disconnected from the specifics of the law, and assume the answer that comes out the other end is correct.
Or we just bundle up of our W2s and 1099s and send them to a professional preparer, who does even more opaque stuff and presents us with a return to sign. Sure, the record keeping is annoying, but we miss the real fun.
In this way, technology both inoculates us from much of the complexity of tax filing and reduces compliance costs. But, more importantly, it immunizes the politicians from the consequences of their decisions that lead to this madness.
Tax complexity isn’t just about the number of forms and their incomprehensible instructions (btw, no criticism intended towards the folks at the IRS who write them. They do the best they can, given the loony law Congress hands them).
The real price of complexity is the very opaqueness of the Tax Code itself. Because we don’t understand the law, we are convinced we are paying more than we owe and that everyone else is paying less.
Yet, tax software allows politicians to add ever more complexity, which we accept with little complaint. Think about the Buffett Rule endorsed by President Obama. The version debated in the Senate this week would create yet another minimum tax that would result in even more complex forms. But, of course, the households making $1 million or more who’d owe this tax would likely never see the forms. They’d just pay the accountant.
Often, critics of tax complexity say the pols themselves should have to fill out their own returns. I disagree. It would be much more effective if the rest of us had to do it. If we did, I predict tax simplification would be more popular than Dancing with the Stars.
So I’m starting a new movement: Ban tax software and professional preparers for just one year. And see what happens.
Happy tax day.