September 27, 2017

Tax Cuts Aren’t Simple

The GOP’s Tax Plan is being sold as a “simplification” but that’s just not true

by Chris Thomas

This column will cover the details of the Republican Tax Plan in later installments but before we can take on the complexity of the tax code we need to deal with the idea of complexity itself. The GOP is selling their tax package as a “simplification” and while it does simplify some of the calculation that goes into filing income taxes, calling it a simplification or pretending that the motivation for the legislation is about simplifying the tax filing process is dishonest.

How We Pay Our Taxes

The United States has a taxation system which requires that individuals gather their earnings documentation, perform a series of labyrinthian calculations upon them, and report the results to the federal government which then checks those values. The average American spends just over 8 hours on their taxes which works out to a collective annual effort of 2,647,000,000 man hours or roundabouts enough cognitive man-hours to recreate the Wikipedia online encyclopedia from scratch 26 times each year.

When Republicans talk about simplifying the tax code they are not talking about fixing that, though plenty of solutions exist. Much of Europe uses a process called “pre-filing.” The government sends you a tax form; you review it for accuracy, sign it, and mail it in with (or without) a check. If you disagree with their assessment you’re still free to file your own return and claim whatever deductions or exemptions you like but the initial burden of calculation, reporting, document gathering, etc falls to the bureaucrats who’d be calling you on the carpet for an arithmetic error in on your 1040. So, what’s standing in the way of such a stress-free system?

Lobbying

H&R Block and Intuit have spent millions of dollars lobbying Congress against the adoption of prefilled returns and continue to work to prevent the IRS from advertising existing free online filing tools. While increased awareness of and use of free e-file would save Americans a great deal of headache (and postage), prefilled returns are where Congress could make a real difference.

According to ProPublica, prefilled returns would not only save Americans countless millions of man-hours and reduce tax-season stress considerably, they’d also amount to a nearly billion-dollar tax cut for the million or so Americans who are due refunds but don’t file returns.

So What’s Simplified In This Bill?

Since Congress isn’t doing any of that thanks to the influence of tax preparation companies, the claim of “simplification” has to come from elsewhere in the bill. Mostly though, those simplifications just benefit the IRS.

  • Fewer tax brackets — but since you don’t have to calculate this by hand it doesn’t change the filing process at all.
  • Rearrangement of deductions and child tax credits —this just results in similar complexity but replaces something Americans at least understand with a new, unfamiliar process
  • Repeal of the alternative minimum tax, personal exemption, and estate tax — none of these are complex but they provide plenty of opportunity for Congress to shuffle around the burden of who pays and how much.
  • Eliminate most itemized deductions —Itemized deductions are a paperwork nightmare but no one forces you to take itemized deductions. If you do it’s because you think the money you save is worth your time.

What Does All Of This Mean For My Tax Bill?

Great question. Check back with us in the coming days and we’ll go over each of these, and other provisions in the proposed Republican tax framework in detail.

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