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  5. Only in America is filing taxes such a complicated mess. Here's how other countries do it better.

Only in America is filing taxes such a complicated mess. Here's how other countries do it better.

Paul Constant   

Only in America is filing taxes such a complicated mess. Here's how other countries do it better.
Policy3 min read
  • Paul Constant is a writer at Civic Ventures and cohost of the "Pitchfork Economics" podcast with Nick Hanauer and David Goldstein.
  • In the latest episode, they discussed why lobbyists want to keep the US tax process so complicated.
  • In other countries, the government sends people an estimated tax filing rather than making them guess what they owe.

"Everybody I know wants a simpler tax process," a caller to the latest episode of "Pitchfork Economics" asked. "So why isn't it happening?"

It's a great question. Filing taxes in the United States is so incredibly complex that many people feel compelled to hire highly-trained experts to complete and file their taxes on their behalf. In a country that encourages home ownership, actually owning a house makes filing taxes exponentially more difficult. Many Americans pay more in taxes than they have to because they don't realize they qualify for various credits and deductions.

If you're a freelancer or an independent contractor, you're encouraged to file with the Internal Revenue Service on a quarterly basis, keep a big bin of paper receipts to track your write-offs, and set aside a huge chunk of your earnings for payment at a later date.

Filing taxes doesn't have to be a complicated and demoralizing mess

In fact, in many countries, you don't have to do your taxes at all. As Jessica Huseman noted in a ProPublica investigation in 2017, in countries across Europe, the government sends each citizen an estimated tax filing, which itemizes their deductions, earnings, and charges. And before you complain about big government overreach in those European countries, understand that anyone can dispute their government's estimated filing and prepare their own returns if they like.

We could do this here in the US. Before you even begin filling out your tax returns every year, the IRS already has a good idea of what you should be paying. All your earnings and property are already tied to your personal information, and that information has been reported to the tax agency, so estimated filings would be a trivial amount of extra work for the IRS. Is tax law so dull that the IRS has to score cheap thrills by forcing us to do complicated math under the threat of imprisonment for tax fraud - even though they already know exactly how much we owe them?

To find the real reason for all this unnecessary math, you have to follow the money

Huseman reports that "Intuit - the makers of TurboTax - and H&R Block have lobbied for years to derail any move toward such a system." Between them, those two companies spend millions of dollars every year to convince lawmakers to keep the tax system complicated and confusing, so consumers are forced to purchase their products every year.

In addition to lobbyists making hefty donations to their campaigns, some politicians also enjoy second-order benefits from the fight to keep your taxes complicated. Trickle-down politicians love to use American frustration on tax day as a mechanism to promote their anti-government crusade. When you absolutely loathe filing and paying your taxes, it makes you more likely to see the government as a too-complex system that always takes and fails to produce meaningful benefits.

Every few years, you'll see a Republican presidential candidate grab some attention for their attempts to "simplify the tax code" by promoting a so-called "flat tax" in which every adult American pays the same percentage of their income. (Two presidential hopefuls from Texas, Ted Cruz and Rick Perry, both ran on flat tax platforms in the last decade or so.)

On the surface, this sounds fair, until you realize that middle-class families would pay a few hundred dollars more per year under the flat taxes that have been proposed in the past, and that millionaires would pay several hundred thousand dollars less.

Worse still, exceptionally wealthy people like billionaires don't make income in the same way that you or I do

Instead of weekly or bi-monthly paychecks, many of them borrow money against their unrealized wealth from stocks at very low interest rates, and none of that wealth would be addressed by a flat tax. So even as we strive to simplify the tax process, it's vital to remember that not all simplification is a good thing.

Until we finally convince our lawmakers to forego the lobbying arm of the tax preparation industry and create an easier tax filing process, "Pitchfork Economics" co-host David Goldstein has some advice for ordinary American taxpayers: "For all of you folks out there who are not itemizing, who are still paying people to do your own taxes: Stop! There are a lot of free services out there that the vast majority of American taxpayers qualify for."

"Go online, Google it. I've never paid anybody to do my own taxes, and I do itemize because I'm a homeowner," Goldstein said. Workarounds like that are the reality for American taxpayers until we push hard enough for reform that ensures a simple and stress-free tax filing process.

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