There has been some talk by the Administration, and in the media recently, on the creation of a ‘simplified tax return system’. On Saturday, Randall Stross, writing in the New York Times, asked: “when you prepare your return, why can’t you first download whatever data the Internal Revenue Service has received about you and, if your return is simple, learn what the I.R.S.’s calculation of your taxes would be?
On first impressions, this seems like quite a good idea – what’s there not to like about something that would simplify your tax return? Like with many things relating to government, however, first impressions can be deceiving. And, if implemented, such a system would, without doubt, lead to greater problems for taxpayers, and, ultimately, higher taxes.
But first, some background. The United States has a system known as “voluntary tax compliance”. While usually eliciting a chortle every April 15th, what this really means is that the taxpayer is the initiator of activity. He files the tax return. He asserts tax liability. The burden of proof is on the IRS to demonstrate that this taxpayer’s bill should have been higher.
It’s not like that in other countries. In France, for instance, most workers don’t even file a tax return. Rather, the tax authorities send taxpayers a filled-out return with a determination of tax liability. The burden of proof is on thetaxpayer to say that the French version of the IRS is wrong. All the dynamics are the complete opposite of how they happen here. This is the model which advocates of ‘pre-filled’ tax returns are moving to.
In the April 15th of the big-government advocates dream future, the taxpayer would be “freed” of the responsibility to file your tax return. Rather, the IRS would send you a pre-written tax return showing your refund or balance due. The problem is, only a very small minority of taxpayers have a ‘simple’ tax return. In almost every return there are (potentially hundreds) of gray area decisions that, if the IRS were left to determine, would, of course, fall on the side of giving greater tax revenue to the government. If a taxpayer wanted to challenge any of these decisions, they would be able to do so - it should only be slightly more difficult that fighting city hall on your property tax assessment, or trying to get out of jury duty. You will, of course, be on your own against a bureaucratic behemoth with unlimited resources funded by your taxpayer dollars.
The net result, of course, is that the IRS would collect more tax revenue. That’s the real goal here. If that was not the goal, supporters of a “return-free” tax filing system wouldn’t always tout the fact that more tax revenue would come in. In a country where tax-laws were less complex, less arcane than ours, such a system might indeed be an improvement. But with our convoluted tax code, making the IRS responsible for not only collecting and auditing our tax returns, but also preparing them, is not only a conflict of interest, but is little more than a covert tax hike. So don’t be fooled. This is a plan that all taxpayer advocates should oppose.