In Spain I log onto the tax agency website using my digital certificate. It tells me what I have been paid during the year, what I own, how big my mortgage is, etc. If I agree I click a button and pay whatever I owe. If I don't agree, or some info is missing, I add it in and then click the button.
It's astronomically easier than filing the same tax information in the US and takes far less time even though the tax code is less clearly written and user support is almost totally nonexistent.
The nonexistence of a national ID system makes digital identification unnecessarily difficult. The idea that an individual has to redeclare to the IRS what has already been declared to the IRS on W2s and 1099s is just stupid.
It is not primitive, it is intentionally complex and riddled with loop holes so it can be manipulate by those who know how to creating all kinds of new markets for law, filing, and enforcement.
The US system is more complex, but I wouldn't attribute this to malice.
The reason why it's so easy to file taxes in lots of European countries is because the tax system (for the general population) is a lot simpler. For example in Austria you pay the same amount of taxes no matter if you're single or married, capital gains are taxed at a flat rate and directly withheld by brokers, and "social benefits" are typically handled outside of the tax system instead of being folded into the tax system.
In the United States the tax code is a lot more complex. You pay different taxes if you're married compared to if you're single, capital gains tax rate depends on your other taxes so brokers can't automatically withhold taxes, and there are a lot of edge-cases for certain other situations that can't be easily automated. Like tax credits if you're affected by natural disasters, different tax handling for railroad worker pensions, and so on.
With that complexity it is a lot harder to automate taxes, but it's also hard to retroactively reduce that complexity, as any changes will negatively financially impact some of the affected groups. Also I think that it might be easier in the US to handle those aspects as part of the tax system (instead of handling them independently), as the federal government has the authority to collect taxes, but direct payments (outside of the tax system) to individual groups might be harder? (But I'm not sure if that's true).
But all of that complexity seems to be added with good intentions. Just look at the "Coronavirus Tax Relief" as the latest example which by itself has a long FAQ page describing all of the details: https://www.irs.gov/newsroom/coronavirus-related-relief-for-.... Adding that to the tax code was probably the best short-term approach to quickly ship something (and lots of people are probably in favor of those changes), but that complexity adds up over time.
To me this looks somewhat like the broken windows fallacy: In countries where the tax code is simple and allow for "automated" taxes nobody is going to advocate for a new law if it makes filing taxes a lot more complicated. But in countries where the tax code is already complex adding one more complex law doesn't make too much of a difference.
Some of the complexity is also due to the design of our governments. I don’t know much about taxes in Spain, but I’d guess the number of income tax jurisdictions there is not a 3 digit number.
I file in both the US and Spain. There is nothing particularly more complicated about the US. Some aspects are more complicated in Spain (both countries tax on worldwide income). The notion that the complexity of the filing explains the inability to do it online is complete nonsense.
My post does give the tone of malice, and certainly what I was thinking about while writing but not my intention. But I do recognize there are "good reasons" why it should be manipulated as well.
I think that efforts to suppress things like "Easy Tax" where the feds would send you a pre-filled-out form that you could agree or disagree with are almost certainly malice. There have been multiple attempts over the years and the anti-tax Norquist crowd comes down. If they can't end taxes, they don't mind it being difficult to file taxes and they say that it's because they wouldn't mind someone accidentally under paying or under reporting taxable income and it not getting caught.
Part of the political resonance with the tax issue is the cost of doing taxes and the stress it causes. If the process was as simple as verifying a document, signing it and sending it back (or heaven forbid, docusigning it and clicking 'next') then the discussion changes to "what are my taxes doing?" and "is this worth it?"
I really like your second paragraph, hadn't considered that.
I have a hard time seeing past malice, when some of the most high profile easy to target tax dodgers consistently pull it off with only good outcomes, or when the IRS is given more money to specifically target them yet doesn't.
The reason the US lacks a national ID system ties back to a strongly held belief about state's rights, and that a national ID system would violate those rights, IIRC. I think it's already somewhat happened though, as I understand REAL ID to more or less be that.
Yup, I heard the same. SSN's are the relatively recent "compromise" made in the 40's. Initially as a way to access your, well, social security. In post depression times where people wanted security more than freedom.
ofc it was never meant to act as a national ID (and thus never tried to be secure), but more and more things are hacked in to make it act as such since there's no better option. A bit ironic given the state of social security nowadays.
I don't think it's related to national ID system though. The Social Security Number (or Tax Identification Number for non-citizen non-residents) does serve as a national ID for tax purposes. The IRS certainly already does have your W2's and does know who you are, that's not an issue.
The main issue is what the OP is about, that the US was considering creating such a system, but the tax prep software people lobbied against it.
I also wonder how much of an issue is the crazy complexity of the US tax code; it seems ridiculously complex to me, even for people without complicated or large income, I suspect it's a lot simpler in Spain. But this is just me guessing.
Never once seen a tax form here in the UK. Your employer deals with it. Every year they mail you a personalised table showing exactly how much each public service cost you (i.e. what they spent your taxes on).
How do you incentivize people to provide missing info if it will increase their tax bill?
The US system is intentionally designed so that you don't know what the IRS does or does not know. If you leave something off of your taxes that the IRS knows about then maybe they'll audit you and give you a big fine. So the optimal strategy is to report everything and pay the taxes you owe.
In Spain's system, it seems to me that the optimal strategy would be to either go with what the tax agency says or to report more information, depending in which gives you a lower tax bill.
The US system is intentionally designed for companies like TurboTax to make money off of you and to be a political tool.
There's a lot you still have to report yourself, like cash payments or sales, crypto currency, dependents, charitable contributions, and so on.
It's not like the IRS magically knows everything. You're acting as if people only avoid tax fraud because the IRS has a general idea as to what you owe and they keep it secret from you. People are generally pretty decent. The people intentionally committing tax fraud are gonna try whether the IRS keeps your taxes secret from you or not.
Yet there are businesses like TaxDown and TaxFix trying to get in the middle (just look at how much they're spending on ads in Spanish TV).
I seriously hope they fail, and also that they're never able to influence the powers that be / the whole process with Hacienda (they surely would like to make it more complex, more like filing a return in the US).
Does it also tell you of its own volition if the tax office owes you money instead on a return without you having to declare anything? For example, if the tax office knows where you work as an employee and where you live, and the tax code has provisions that stipulate that an employee gains a tax advantage of 0.xx€ per kilometre commuting distance between his home and his place of work, does it factor that in or doesn't it? Because that would actually be _nice_.
In the U.K. if you’ve overpaid in a given year (usually only a few pounds) you get the option to either roll it over to the next year, or a direct bank transfer to the account you give.
I’ve had payments pretty much instant (maybe next day) of repayments that are 4 figures, and ones that are just a few pennies.
Yes, if you pay too much in tax and their calculations reveal that, then, yes, you get money back on your bank account.
They don’t calculate commute deductibles for you, but mortgages, pension is something which is calculated for you based upon reports from the respective institutes.
While this is a fair criticism of our federal tax system, it still wouldn't be simple for me to file my taxes even if the IRS filled out all of my federal forms. Many places in the US have state and local income taxes, so for some people, the IRS is only one of two or three agencies that they fill out tax forms for. There are hundreds of different governments that impose income taxes in the US.
We do have several local taxes as well (in France). They are all handled by your equivalent of the IRS, everything is on the same web site (I do not even know what I pay in local taxes, I get an email telling me that it i due, and it is then direct debited from by bank account).
Yes, but you have a unitary government. In the US, states have a constitutional authority to independently administer taxes inside of their borders, and there is no way in hell that they are going volunteer that power away. Also, states have the power to tax income that is generated outside of their borders where have no power to require reporting. So they couldn't legally automate those tax filings even if they wanted to.
The US government has zero power to change any of this.
> Many places in the US have state and local income taxes, so for some people, the IRS is only one of two or three agencies that they fill out tax forms for.
(1) In many of those cases, state/local filing requires very small additional paperwork plus same-year federal forms.
(2) In many of those cases, the same thing the IRS could do for federal forms could be done by state/local tax authorities for their own forms.
So, solving the federal case both solves most of the problem and provides a template for solving most of the rest of the problem.
... and all you have to do is get hundreds of different organizations to agree to do something that nobody has managed to convince any of them to do. The template you propose is imaginable, yes, but logistically unlikely.
It makes sense to have a tax authority to fill out their own tax forms. I don't think it makes any sense to have what amounts to a nationalized TurboTax that interprets tax laws outside of their own jurisdiction.
States' tax laws are not just federal taxes on a different form. They're independent tax systems with different legislation and different judiciary. Maybe in some states the tax code is simple enough that it can be filled entirely from information on your federal taxes, but this is often not the case.
I've done state taxes by hand in 5 different states, including nonresident taxes. All of them go through the same basic process: copy your AGI from the federal form, adjust for local purposes (which for me meant running my finger down the list of adjustments in the instructions and going "nothing applies"), compute taxes, add in the use tax, and you're down. If you've got multistate tax issues (whether nonresidency or part-year), things get spicy because you have to allocate income across the different states.
And even then, the only difficulty I had was doing CA nonresident taxes, because it turns out that there's a weird collision with CA and a few other states for nonresident taxes, the other one being the state I lived in at the time. And CA's instructions doesn't tell you about needing the other form unless you read the instructions for that form in particular.
> It makes sense to have a tax authority to fill out their own tax forms.
That's all that is being talked about with #1.
> I don't think it makes any sense to have what amounts to a nationalized TurboTax that interprets tax laws outside of their own jurisdiction.
No one is suggesting that.
> States' tax laws are not just federal taxes on a different form.
Typically, a component (often the main component, with the state firm being smaller to capture special situations that cause variations) of state tax filing is exactly federal tax documents (not on a different form.)
Getting the state to prefill their own forms is a separate policy decision, but it's generally smaller impact in time/effort per filer as well as smaller impact in # impacted.
The acceptance of federal forms by states ranges from
"we don't even have income tax" to "copy over a few lines, multiply by this fixed number, and we have 5 other possible deductions" to "we have our own forms for everything, and you need to file a separate local tax return"
And heaven forbid you have any part year returns with a couple of states like the latter.
My point is that the whole system is inherently a mess and even if federal returns were automated, many people would still be spending considerable amounts of time preparing taxes.
I'm not suggesting that the federal system would print out the state taxes complete, I'm saying that just having access to the federally prepared information would greatly simplify the state filing.
Like my taxes are relatively simple, so my state taxes are just a few calculations using my taxable income from the federal 1040, and then also I have to attach any federal schedules I filed. Having the completed 1040 and printable schedules would reduce the state filing down to a few minutes of work.
If that solved people's problems, then there would be no need for people to buy tax prep software that does state returns... and some don't, but it is an extremely popular selling point of TurboTax and similar software.
My tax situation is not complicated and my state filing is 11 pages, plus 8 pages of worksheets. Federal schedules are not accepted, my state has similar but slightly different counterparts.
In Spain the tax filing includes local taxes as well as federal taxes. Spain has, proportionate to population, more subregions than the US does, and their fiscal policies in relation to taxes vary considerably.
The US system is just terribly implemented and there's no excuse for it.
Maybe it just optimizes for different things? I honestly don't see why you'd think your system is superior, we have a similar one to americans here in canada and it's just fine. No one really complains about it outside the internet, and to me the process you described wouldn't fit here as much. Having your own business, or side revenues, or not being a salaried employee is much more common here. And we (thankfully) don't have a mandated ID in canada or in the US, which makes it harder for the state to actually track all your income and expenses.
Yes TurboTax and the tax filling industry in general are pretty shady, and there should be free IRS/CRA tools for people to fill their returns directly. Unless you have a more complicated tax situation. But to me that does not have anything to do with doing away with tax fillings in general.
> The nonexistence of a national ID system makes digital identification unnecessarily difficult.
You can thank the Christians in the Reagan years for calling damned near everything "The Mark of the Beast", including social security numbers, attempted creation of a national ID, and more.
So we ended up with a de-facto national ID, being a hodgepodge of state IDs, RealID, SSN, credit scores from multiple (horrific) credit vendors, legal records, and plenty more.
It's astronomically easier than filing the same tax information in the US and takes far less time even though the tax code is less clearly written and user support is almost totally nonexistent.
The nonexistence of a national ID system makes digital identification unnecessarily difficult. The idea that an individual has to redeclare to the IRS what has already been declared to the IRS on W2s and 1099s is just stupid.
The US tax filing system is simply primitive.