Does Anyone Care About a Simple Tax Code?

By :: April 10th, 2014

One of the biggest  selling points for tax reform is the claim that a new and improved revenue code would be easier for taxpayers to manage. Along with economic growth and fairness, simplicity has been a watchword for reform for decades.

But a striking new survey by the Associated Press-GfK  has me wondering whether anybody cares. The poll, taken in the midst of tax season, finds that 58 percent of those surveyed think filling out their tax forms is “easy.” Only 38 percent say it is “hard.”

The poll provides one big clue why: The vast majority of people don’t actually fill out their tax returns. More than 4 in 10 said they use software and nearly half reported using a professional preparer. Only 7 percent said they fill out forms by hand. Btw, actual filing data this year are close to this, though somewhat different: About 11 percent have filed by hand.

For the vast majority of taxpayers, filling out their returns really is easy. More than two out of every three take the standard deduction. The vast majority report only wage income. Only about one in ten report capital gains or losses (you can learn more about who claims what with TPC’s new interactive tool).

More than 4 in 10 taxpayers don’t even file the Form 1040—they use either the easy 1040A or the really easy 1040EZ. Life isn’t so simple for everyone with only wage income and the standard deduction. For instance, the instructions for the Earned Income Tax Credit (an important subsidy for low-income working people) can be a minefield.

But even those with uncomplicated lives have turned to software or walk-in tax prep services such as H&R Block or Jackson Hewitt. So whether you only have to keep track of your W-2 and count up the members of your household, or have a shoebox full of 1099s and K-1s, tax filing has come to this: You spend time assembling paper and either plug the numbers into little boxes on your computer screen or shlep the whole business off to your tax preparer, who plugs the numbers into little boxes on his computer screen.

This is tedious and often annoying. But it isn’t hard. Nobody has to do the math any more. And no longer do they have to follow those IRS instructions that get you to the right answer even if they seem downright bizarre.

There is a fascinating paradox to tax filing: The rules got so complicated that they created the booming tax-prep business. Once we took the leap and paid TurboTax $59 for its software, or paid a CPA or storefront preparer, we became immune to the code’s increasing complexity. And the less we cared, the more complicated Congress was willing to make it.

For example, I’m convinced that the Alternative Minimum Tax would have been repealed years ago if people had to fill out the Form 6251 by hand. But if Turbo or Block does it for you, who cares how incomprehensible it is?

This phenomenon—sometimes called the Turbo Tax effect—is hardly new. But the Ap-GfK poll confirms its importance.

This may not be the end of the story, however. There is still a price to complexity:  A complex law is almost by definition opaque.  And people who don’t understand the tax code often believe it is unfair. They think they are getting the shaft while their neighbor is driving his new BMW through some lucrative loophole.

So maybe there is still an opening for reformers, as three political experts discussed at a Tax Policy Center panel in March.  But the message may have to be built around fairness, not simplicity.

 

 

 

35Comments

  1. Ralph H  ::  3:55 pm on April 10th, 2014:

    You have hit this spot on. Only a very, very few really understand how their taxes were calculated, and what their marginal rate is. A real “dumbing down” of America on what is a major expense. With this understanding a discussion of tax policy is ZZZZZZZZZZZ. My taxes are fairly complicated and I use TurboTax. Looking in the post office I see they no longer supply forms. Its amazing that supposedly intelligent people with advanced degrees turn over their preparation to professionals and are unaware how the AMT,Obamacare taxes, or the rise in upper rates have hit them.

  2. Michael Bindner  ::  5:11 pm on April 10th, 2014:

    I quite agree that simplicity is not the reason for reform. The reason for reform is to increase the tax supported wage supplements to families – and these should be made easier. Indeed, the employer should do the preparation and file it with an employer paid net business receipts tax (a receipt invisible VAT with deductions). Indeed the real way to make the tax system simple is to end it for most families, as Michael Graetz, Lawrence B. Lindsey, Len Burman and myself have been proposing for years. We’ve all been heard from or at least put on the record – but none of us has been invited to work with staff on a bill. Chairman Camp’s bill is classic tax reform on the 1986 mile – but it does not go big enough. Either go big or go home.

  3. AMTbuff  ::  5:58 pm on April 10th, 2014:

    The number of people who care more about a simple tax code than they do about how the tax liability is distributed is exceeded only by the number of people who watch CSPAN 3.

  4. Thomas A Stout  ::  8:10 am on April 11th, 2014:

    Much of the concern about complexity is really about fairness – concern that complexity is allowing some to avoid paying their ‘fair share.’

  5. Ralph H  ::  10:04 am on April 11th, 2014:

    Thanks Michael — just what I need – more BS forms and taxes to pay & worry about. Every time an idealist puts in another requirement we move closer to an economy run by mega corporations, non-profits and government.

  6. jim jaffe  ::  2:51 pm on April 11th, 2014:

    The IRS collaboration with TurboTax and comparable services has been a great success, simultaneously making life easier for taxpayers while saving the IRS an enormous amount on printing and data entry costs. And the computer programs don’t make arithmetic errors. Things seem to be working well. If there’s no evidence the system is broken, what’s the justification for making the massive political investment required to fix it?

  7. Blake Treu  ::  12:37 am on April 12th, 2014:

    Your analysis of the cause behind why people aren’t too concerned with the complexity of the code seems correct. That said, although I support finding ways to simplify the tax code (starting with AMT), I do not like the way that Congress is discussing doing so. One of the ideas being kicked around in the Senate Finance Committee is to triple the amount of the standard deduction. Aside from the obvious tax-cut nature of this simplification, it also dramatically dilutes the incentives behind some of the itemized deductions, especially the charitable contributions deduction and the mortgage interest deduction. You may be able to convince me that we don’t need to provide tax incentives for home-ownership, but you’ll never convince me that we shouldn’t encourage people to make charitable contributions.

    To the general issue of complexity in the Internal Revenue Code – I agree that there are plenty of areas that are unnecessarily complicated, but oftentimes the complexity of the tax code is intended to protect the system from the abuse of loopholes, not to generate new ones for people to get away with paying less. Too often people mistake tax law complexity as allowing people to get away with paying less taxes when in reality the intent behind it is just the opposite.

  8. Michael Bindner  ::  2:09 am on April 12th, 2014:

    You do a 1099 or W2 for each employee anyway. If you make under 150K now, you would file no forms.

  9. Taxing Weekend Ahead  ::  2:00 am on April 13th, 2014:

    […] and TPC’s Howard Gleckman wonders if anybody really cares about a simple revenue code in his latest post. Few of us file by hand anymore so doing taxes feels simple, in spite of the law’s incredible […]

  10. Ralph H  ::  10:44 am on April 14th, 2014:

    And if this subsidy/rebate depends on how many kids you have will the employer be responsible for CERTIFYING dependents or if you are legally married. What if their income (from other sources exceeds a threshold? No thanks if so. Now it is the taxpayer’s responsibility.

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  12. Stephen S  ::  12:23 pm on April 19th, 2014:

    The article’s thesis is satisfying…that burying complexity behind technology eliminates the pressure for tax simplification. As a tax attorney for way too many years, I want to add a fillip to this thesis… individuals using the 1040A and 1040 EZs are, frankly, pretty well insulated from the complexities of the 70,000 pages of tax code and regulations through withholding and an infrequent involvement in capital gains, alternative minimum tax, or foreign source income, (not to mention flow-through tax entities, inventory or accrual accounting, or the forum shopping between tax situs by state or country). The need for simplicity should be, curiously, driven by the “sandwich taxpayers”, those sandwiched between being involved in business or personal investment activities that trigger the tax code at its most insidious, (the planning and compliance for which defy simple computer runs), but being unable to afford the cadre of lawyers and accountants and internal staff necessary to turn those complexities to additional sources of “profit”. When there is no longer a net arbitrage between expensive professionals using tax complexity and tax “savings” from the investment in their services the screams for simplification from the largest taxpayers will be heard../and I suspect accommodated.

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