Fixing the Tax Problem in America

With another Tax Day behind us, it is time we turn our attention at simplifying our tax codes in this country.  Has anyone tried to do their taxes without any programs or without using a tax professional?  The tax books are filled with confusing jargon that would leave the average taxpayer with a giant migraine.  In 2006, it was reported that the tax code contained over 13,000 pages.  Not to worry, these days taxes can be done by a multitude of online programs, walk-in tax offices, and numerous CPA’s and accountants.  Tax preparation has become a huge industry as tax laws have grown more and more complex.  It is common to see temporary office spaces occupied for the first six months of the year by tax preparation businesses.  Even with the increased assistance available to taxpayers, it is an accepted belief that something needs to be done to shorten and simplify the tax code.  What exactly needs to be done is up for discussion.  Today we’ll try to start that discussion.

Completing tax forms have become a lucrative industry in America.

There have been numerous ideas as to how we should go about changing the tax code.  Today we will discuss a couple of those ideas.  The first of these ideas has been recently trumpeted by the Obama Administration.  The solution is centered around a simple tax form.  The form would be sent out to taxpayers at the beginning of each year and would have the basic information of the person.  For instance, under the current rules, the tax preparer would need to fill out a completely blank form with the person’s name, address, earned income, with-holdings and employer information.  The catch is that the government already has this information available to them.  When anyone is hired by a company, their information is provided to the company, and that information is then passed on to the IRS for payroll purposes.  Imagine all the time and money that would be saved if a pre-filled form could be sent to people already containing this information.  The person would only need to verify, sign and have the form mailed back.  The interesting thing is that this policy would also eliminate errors in manually filed returns.  This process could also take place online similar to using a program like Turbo Tax to complete one’s taxes.

The idea of using a pre-filled form to do your taxes in not a novel one.  California currently uses a program that is aimed at the simplest of filers.  The state sends out a form that has all the tax information for an individual.  The filer only needs to verify the information and then sign and send in the form.  California saves money since the forms are filled out by a computer and not written by hand thus ending the need for multiple forms.  The cost for processing the returns is about 1/7 of processing a paper return in California.  The IRS has estimated that processing a paper return costs 8 times as much as processing an electronic return.  This program would not end the tax preparation industry.  Filers with complex income or business owners would still be inclined to use tax professionals or tax software.  Many filers in general would likely continue to use the industry as a way to verify the forms.  However, the dreaded tax season would likely be reduced to a few minutes of verifying information and signing off on the return.  There is always support for less stress.

Many Americans have moved to protest the complexities of the current tax system.

Another popular idea that has been discussed as a solution to the complex tax code is installing a flat tax rate for all filers.  This is a popular theme among conservatives.  A recent poll conducted on this blog resulted in a 57% support for this measure.  Simply, a flat tax would be a uniform percentage of taxing income that would apply to all filers.  The current system features a progressive tax rate.  This means that as the incomes rise, so to does the percent of taxes that are paid.  For instance, someone earning $20,000 may pay a total tax of 10% while someone earning $200,000 may pay a tax of 35%.  The reason behind this is to allow the lower earners to keep a higher percent of their money.  The current system allows for many tax credits and deductibles that can lessen the amount of taxes that are paid.  The flat tax system would put all income earners on a level tax percentage playing field.  The same person earning $20,000 would pay the same percent of their income as the person earning $200,000.  The system is touted as a simpler way for people to file taxes and would eliminate the need for many of the exemptions and credits in the current system.  This aspect of the current system has been blamed for the rampant fraud and abuse that happens.  However, the system has its flaws.  A person with a gross income of $20,000 and a tax percentage of 10% would be reduced to an income of $18,000.  A person with a gross income of $200,000 and with the same tax percentage would be reduced to an income of $180,000.  It can be argued that the burden is equal for both, however, the lower earners would lose a more important chunk of the money.

Two drastically different ideas on how to solve a common problem.  Where do we go from here?  Well the obvious conclusion is that more dialogue needs to be had regarding this problem.  The pre-filled forms would provide a quicker solution and would be able to be analyzed instantly.  A flat tax rate would need to be hammered out and would need to be adjusted to meet the needs of both the taxpayers and the government.  There are many other solutions that are being thrown around that would address the issues of the current tax code.  What we need is for a stronger push to examine the problem.  What is needed is for the people of this country to get involved and to urge their lawmakers to look at this issue.  As is always the solution, Get Informed and Get Involved!

—Editors Note—

For more information on a pre-filled tax form read the article by American Chronicle

For more information on a flat tax read the article by Newsvine

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2 responses to “Fixing the Tax Problem in America

  1. The Center Square

    The tax code is not complex because it is progressive. There are very few tiers in the marginal tax rate structure, and those are easily determined for each tax payer.

    Rather, it is the incredibly byzantine definition of taxable income and allowable deductions that creates the complexity. This has nothing to do with a tiered marginal tax rate structure.

    If simplicity were all we sought, we could eliminate all deductions but retain the tiered marginal tax rate structure. That would reduce the tax code from 13,000 pages to who knows, maybe 130 pages! I suspect most of those who advocate a flat tax are motivated not by a goal of simplicity, but rather one of shifting the tax burden further away from upper income individuals.

    Fun fact: About 65% of all taxpayers take the standard deduction anyway. However, that is dropping as more and more filers itemize deductions. [http://www.urban.org/publications/1001054.html].

    • many consider the tax code to be complex because of the multitude of credits and deductions that filers need to take into account. there seem to be new laws added to the books every year and it begins to confuse many that are not trained in the tax code. also, there are provisions to delay paying taxes and also provisions that delay filing taxes. when tax code requires over 13,000 pages of rules, it can’t be considered simple.

      Thank you for your comment.

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