9 ms·

Yes, you're right that people in that camp are unlikely to review their tax filings from their 3rd party. However there is an incentive for that 3rd part tax co

by Dig1t 8y ago

Yes, you're right that people in that camp are unlikely to review their tax filings from their 3rd party. However there is an incentive for that 3rd part tax company to save their customer as much as they possibly can. The bigger the refund, the happier the customer and the more likely they are to come back next year and give you more money. In the Planet Money episode they spoke with the Republican dude and his biggest point was that his goal was to support a system where people paid as little tax as possible, and this current system we have is just that.

gowld 8y ago
If complicated taxes are a Republican anti-tax strategy, why did Reagan and the 1980s republicans pursue a strategy of vastly simplifying the tax code? Doing taxes is a tax -- in hours and fees. Only the wealthiest people who can spend $10K on tax prep to save $100K via loophole deductions, oh.
- jacobolus 8y ago
  Simplifying the tax code in the 80s was the public sales pitch. The real strategy was to dramatically cut taxes on the wealthy (e.g. by eliminating the top several marginal tax brackets). But keep in mind, the Democrats controlled congress, so reform had to gain bipartisan support.
  - twoodfin 8y ago
    This chart doesn’t show evidence of a particularly dramatic cut in effective rates for the top 1% of earners: https://taxfoundation.org/taxes-rich-1950-not-high/ https://taxfoundation.org/taxes-rich-1950-not-high/
    - jacobolus 8y ago
      The top 1% of earners today earn a dramatically larger share of total income than the top 1% in the 1950s. If taxes kept up, they would have noticeably higher effective tax rates than they used to have. P.S. The “Tax Foundation” is a right-wing “think tank” (i.e. activists masquerading as researchers) funded by billionaires and corporations. I would however recommend reading the whole paper they cite, http://gabriel-zucman.eu/files/PSZ2017.pdf http://gabriel-zucman.eu/files/PSZ2017.pdf > Government redistribution made growth more equitable, but only slightly so. After taxes and transfers, income in the bottom quintile stagnated (+4%) over the 1980–2014 period while it grew a meager 21% for the bottom 50% as a whole. That is, transfers erased about a third of the gap between macroeconomic growth (61%) and growth for the bottom half of the distribution (+1% before government intervention). Taxes did not hamper the upsurge of income at the top, which grew almost as much as pre-tax. > The top panel of Figure II provides a granular view of who benefitted (or not) from growth, by showing the annualized real growth of pre-tax and post-tax income for each percentile of the distribution over the 1980–2014 period, with a zoom within the top 1%. There are two striking results. First, the vast majority of the population—from the bottom up to the 87th percentile—experienced less growth than the (modest) macro rate of 1.4% a year. For instance, the 10th percentile declined by 0.6% a year pre-tax (+0.3% post-tax); the 30th percentile stagnated pre-tax and grew 0.6% post-tax; the 80th percentile grew 1.2% pre-tax (+1.3% post-tax). Only the top 12 percentiles of the population achieved a growth rate as high or higher than the macro rate of 1.4%. Second, even percentiles 88 to 98 experienced unimpressive income gains, between 1.4% and 2.2% a year—in most cases less than the macro growth rate of U.S. incomes for the preceding generation, from 1946 to 1980. The only group that grew fast is the top 1%, whose average income increased 3.3% pre-tax and 3.2% post-tax, with growth culminating at +6.0% a year for the top 0.001%. The top 1% has pulled apart from the rest of the economy—not the top 20%. etc.
  - hnmullany 8y ago
    No-one paid the top brackets because the tax code at that point was riddled with ways to generate tax losses that reduced liability. The tax reform really was a good thing (unlike 90% of what happened under the Reagan administration) https://en.wikipedia.org/wiki/Tax_Reform_Act_of_1986#Passive_losses_and_tax_shelters https://en.wikipedia.org/wiki/Tax_Reform_Act_of_1986#Passive...
    - llukas 8y ago
      There is openly available IRS data on how many households actually paid highest bracket. You are wrong that nobody paid it.
- Eyes 8y ago
  Forget Reagan, they claimed they were trying to do it last year. Remember the post card?
  - dsfyu404ed 8y ago
    By cutting the ability to deduct SALT they made tens of millions of people who would have otherwise itemized do a simple 1040. While not a postcard it did greatly simplify taxes for many people. That said, most of those people are still going to see it as a travesty because they had to pay a little more (god forbid people rich enough to have thousands of dollars of SALT pay taxes on the income used to pay that SALT).
- BurningFrog 8y ago
  > If complicated taxes are a Republican anti-tax strategy... Republicans only last year substantially simplified tax filing.
  - thisone 8y ago
    about the only simplification on mine was that I no longer have to file that I have a full year exemption on the health care law. However I do have to file an extra sheet of paper now just to fill out a single line for foreign address that's been removed from the 1040.
  - throw0101a 8y ago
    Are you talking about the postcard publicity stunt? * https://www.youtube.com/watch?v=0LhKoefZ2QI https://www.youtube.com/watch?v=0LhKoefZ2QI
- Dig1t 8y ago
  The idea is not to make the taxes deliberately complex, it is more about the notion of who is telling whom what is owed. A system where the citizen says "hey government, I think I owe you this much in tax because x" is fundamentally different than a system where the government says "hey citizen, you owe me this much in taxes, here's your bill". In the second situation, the average (complacent) citizen will not look twice at the bill, but rather just pay it and get on with their life. In the former situation, the citizen is forced to have a 3rd party create a statement that says "I owe you this much because x" and because of natural incentives, the company will try to claim the maximum number of [incentives, loopholes, deductions, whatever you want to call them] so that the client saves the most amount of money. Of course the company takes its cut and I'm not arguing that greedy companies are the perfect solution. I'm just saying that there is more to the argument than simply it being a matter of lobbyists getting their way.
sanderjd 8y ago
Except the tax preparation industry must be taking a significant enough cut to make it lucrative to spend money lobbying. Is that cut smaller than the total extra tax that would be paid due to mistakes in the auto filing system? I'm skeptical.
- astine 8y ago
  Tax preparers usually file federal taxes for free while charging a fee to file state and local taxes. That's where they make their money.
  - rhacker 8y ago
    So basically even if the IRS wanted to create a system, they would be competing with a free system anyway? And the IRS wouldn't go out and do a system for each state.
  - sanderjd 8y ago
    I suspect (but don't know) that they make more off of the various up-sells for people with more complex filing situations. Also, the free filing is marketing. It's their foot in the door. If something like rapid return happened, they would lose that strategy.
hobs 8y ago
If republicans wanted to make a system where people would save the most money we'd just reduce the tax loopholes and simplify the system - the system we have now actually only has the wealthy pay the least money. Some would say the republicans think this is a feature.
- rattlesnakedave 8y ago
  How do you differentiate deductions from loopholes?
  - dsfyu404ed 8y ago
    Easy. Any deduction you don't use is a loophole, legislative compromise of yesteryear or not.
- rayiner 8y ago
  This is not true. There are tons of bread-and-butter deductions for the middle class. If you do a cross country comparison of taxes, the biggest difference between the US and Europe is not the rich. It’s the folks making $40-100k, where our low brackets plus tons of deductions (mortgage interest, child care, child credits, etc.) drive the effective tax rate way down
  - jacobolus 8y ago
    Folks in Europe comparable to the ones you are talking about here (i.e. the 50th–85th percentile) are generally much more financially stable/comfortable than in the USA. Varies a lot from country to country, but in general they have e.g. more-or-less functional healthcare systems, better parental leave, more vacations, easier access to childcare, stronger worker protections, ....
    - lagadu 8y ago
      A lot of what you mentioned on our side of the pond is paid for by our social security contributions, not from our taxes though.
metaphor 8y ago
> The bigger the refund, the happier the customer and the more likely they are to come back next year and give you more money. Doubt it. We're talking 1040EZ filings by people in the 22% and lower tax brackets, not complex itemizations typical of 24%+ tax bracket filers. The 5-digit PIN from the previous year's e-filing that's required if you want to expediently e-file this year is enough. Most people aren't going to remember that detail, but the e-filing service you used last year never forgot and they'll gladly auto-fill that block for you as a repeat customer.
- rayiner 8y ago
  The 22% tax bracket goes well above the median income. Meanwhile, in 2010 less than 15% of people filed the 1040ez.
  - metaphor 8y ago
    Bottom end of 22% tax bracket is ~$43k/annum based on 2019 Notice 1036...that's a $23k margin before hitting the $66k AGI threshold for free file offerings. That number is more like ~25mil, or just over 18% in 2017; +4.6% over previous year[1]. EDIT: I suppose I should probably ask what point you were trying to make? I didn't quite track where you were going with all that. [1] https://www.irs.gov/pub/irs-soi/17in01pl.xls https://www.irs.gov/pub/irs-soi/17in01pl.xls
- lightedman 8y ago
  1040EZ was dead as of this year. Have you filed your taxes?
- vonmoltke 8y ago
  > The 5-digit PIN from the previous year's e-filing that's required if you want to expediently e-file this year is enough. Most people aren't going to remember that detail, but the e-filing service you used last year never forgot and they'll gladly auto-fill that block for you as a repeat customer. I was not asked for such a thing, and used a different preparer this year. I was asked to set a PIN for 2018, but I have never had to use a PIN I previously set. I have always been asked for the prior year's AGI for verification. What software asked you for a prior year's PIN to file this year?
losteric 8y ago
> However there is an incentive for that 3rd part tax company to save their customer as much as they possibly can. lol. No. First of all, that myth already assumes a complicated tax code which requires a for-profit middleman. We should be able to minimize our tax exposure without paying corporations. Secondly, the vast majority of filers don't qualify for loopholes. When every tool offers the same refund, competition is for the cheapest/simplest tax experience... while the industry as a whole is strongly incentivized to create an ever more convoluted system, ensuring their yearly rent-seeking continues.
rebuilder 8y ago
If private tax filing products saved money for their users, as compared to a hypothetical, IRS-produced product, what are these companies worried about? They'd have a clear competitive advantage over the IRS product.
- mac01021 8y ago
  How could they save money, though? The tax code is the same in both cases, and most people's financial lives are not complicated enough to make it any kind of challenge to get the best refund.
  - rebuilder 8y ago
    Then the conclusion is the same: no reason not to let the IRS provide their own tax filing service.

by Dig1t 8y ago

gowld 8y ago

If complicated taxes are a Republican anti-tax strategy, why did Reagan and the 1980s republicans pursue a strategy of vastly simplifying the tax code? Doing taxes is a tax -- in hours and fees. Only the wealthiest people who can spend $10K on tax prep to save $100K via loophole deductions, oh.

jacobolus 8y ago
Simplifying the tax code in the 80s was the public sales pitch. The real strategy was to dramatically cut taxes on the wealthy (e.g. by eliminating the top several marginal tax brackets). But keep in mind, the Democrats controlled congress, so reform had to gain bipartisan support.
- twoodfin 8y ago
  This chart doesn’t show evidence of a particularly dramatic cut in effective rates for the top 1% of earners: https://taxfoundation.org/taxes-rich-1950-not-high/ https://taxfoundation.org/taxes-rich-1950-not-high/
  - jacobolus 8y ago
    The top 1% of earners today earn a dramatically larger share of total income than the top 1% in the 1950s. If taxes kept up, they would have noticeably higher effective tax rates than they used to have. P.S. The “Tax Foundation” is a right-wing “think tank” (i.e. activists masquerading as researchers) funded by billionaires and corporations. I would however recommend reading the whole paper they cite, http://gabriel-zucman.eu/files/PSZ2017.pdf http://gabriel-zucman.eu/files/PSZ2017.pdf > Government redistribution made growth more equitable, but only slightly so. After taxes and transfers, income in the bottom quintile stagnated (+4%) over the 1980–2014 period while it grew a meager 21% for the bottom 50% as a whole. That is, transfers erased about a third of the gap between macroeconomic growth (61%) and growth for the bottom half of the distribution (+1% before government intervention). Taxes did not hamper the upsurge of income at the top, which grew almost as much as pre-tax. > The top panel of Figure II provides a granular view of who benefitted (or not) from growth, by showing the annualized real growth of pre-tax and post-tax income for each percentile of the distribution over the 1980–2014 period, with a zoom within the top 1%. There are two striking results. First, the vast majority of the population—from the bottom up to the 87th percentile—experienced less growth than the (modest) macro rate of 1.4% a year. For instance, the 10th percentile declined by 0.6% a year pre-tax (+0.3% post-tax); the 30th percentile stagnated pre-tax and grew 0.6% post-tax; the 80th percentile grew 1.2% pre-tax (+1.3% post-tax). Only the top 12 percentiles of the population achieved a growth rate as high or higher than the macro rate of 1.4%. Second, even percentiles 88 to 98 experienced unimpressive income gains, between 1.4% and 2.2% a year—in most cases less than the macro growth rate of U.S. incomes for the preceding generation, from 1946 to 1980. The only group that grew fast is the top 1%, whose average income increased 3.3% pre-tax and 3.2% post-tax, with growth culminating at +6.0% a year for the top 0.001%. The top 1% has pulled apart from the rest of the economy—not the top 20%. etc.
- hnmullany 8y ago
  No-one paid the top brackets because the tax code at that point was riddled with ways to generate tax losses that reduced liability. The tax reform really was a good thing (unlike 90% of what happened under the Reagan administration) https://en.wikipedia.org/wiki/Tax_Reform_Act_of_1986#Passive_losses_and_tax_shelters https://en.wikipedia.org/wiki/Tax_Reform_Act_of_1986#Passive...
  - llukas 8y ago
    There is openly available IRS data on how many households actually paid highest bracket. You are wrong that nobody paid it.
Eyes 8y ago
Forget Reagan, they claimed they were trying to do it last year. Remember the post card?
- dsfyu404ed 8y ago
  By cutting the ability to deduct SALT they made tens of millions of people who would have otherwise itemized do a simple 1040. While not a postcard it did greatly simplify taxes for many people. That said, most of those people are still going to see it as a travesty because they had to pay a little more (god forbid people rich enough to have thousands of dollars of SALT pay taxes on the income used to pay that SALT).
BurningFrog 8y ago
> If complicated taxes are a Republican anti-tax strategy... Republicans only last year substantially simplified tax filing.
- thisone 8y ago
  about the only simplification on mine was that I no longer have to file that I have a full year exemption on the health care law. However I do have to file an extra sheet of paper now just to fill out a single line for foreign address that's been removed from the 1040.
- throw0101a 8y ago
  Are you talking about the postcard publicity stunt? * https://www.youtube.com/watch?v=0LhKoefZ2QI https://www.youtube.com/watch?v=0LhKoefZ2QI
Dig1t 8y ago
The idea is not to make the taxes deliberately complex, it is more about the notion of who is telling whom what is owed. A system where the citizen says "hey government, I think I owe you this much in tax because x" is fundamentally different than a system where the government says "hey citizen, you owe me this much in taxes, here's your bill". In the second situation, the average (complacent) citizen will not look twice at the bill, but rather just pay it and get on with their life. In the former situation, the citizen is forced to have a 3rd party create a statement that says "I owe you this much because x" and because of natural incentives, the company will try to claim the maximum number of [incentives, loopholes, deductions, whatever you want to call them] so that the client saves the most amount of money. Of course the company takes its cut and I'm not arguing that greedy companies are the perfect solution. I'm just saying that there is more to the argument than simply it being a matter of lobbyists getting their way.

sanderjd 8y ago

Except the tax preparation industry must be taking a significant enough cut to make it lucrative to spend money lobbying. Is that cut smaller than the total extra tax that would be paid due to mistakes in the auto filing system? I'm skeptical.

astine 8y ago
Tax preparers usually file federal taxes for free while charging a fee to file state and local taxes. That's where they make their money.
- rhacker 8y ago
  So basically even if the IRS wanted to create a system, they would be competing with a free system anyway? And the IRS wouldn't go out and do a system for each state.
- sanderjd 8y ago
  I suspect (but don't know) that they make more off of the various up-sells for people with more complex filing situations. Also, the free filing is marketing. It's their foot in the door. If something like rapid return happened, they would lose that strategy.

hobs 8y ago

If republicans wanted to make a system where people would save the most money we'd just reduce the tax loopholes and simplify the system - the system we have now actually only has the wealthy pay the least money. Some would say the republicans think this is a feature.

rattlesnakedave 8y ago
How do you differentiate deductions from loopholes?
- dsfyu404ed 8y ago
  Easy. Any deduction you don't use is a loophole, legislative compromise of yesteryear or not.
rayiner 8y ago
This is not true. There are tons of bread-and-butter deductions for the middle class. If you do a cross country comparison of taxes, the biggest difference between the US and Europe is not the rich. It’s the folks making $40-100k, where our low brackets plus tons of deductions (mortgage interest, child care, child credits, etc.) drive the effective tax rate way down
- jacobolus 8y ago
  Folks in Europe comparable to the ones you are talking about here (i.e. the 50th–85th percentile) are generally much more financially stable/comfortable than in the USA. Varies a lot from country to country, but in general they have e.g. more-or-less functional healthcare systems, better parental leave, more vacations, easier access to childcare, stronger worker protections, ....
  - lagadu 8y ago
    A lot of what you mentioned on our side of the pond is paid for by our social security contributions, not from our taxes though.

metaphor 8y ago

> The bigger the refund, the happier the customer and the more likely they are to come back next year and give you more money. Doubt it. We're talking 1040EZ filings by people in the 22% and lower tax brackets, not complex itemizations typical of 24%+ tax bracket filers. The 5-digit PIN from the previous year's e-filing that's required if you want to expediently e-file this year is enough. Most people aren't going to remember that detail, but the e-filing service you used last year never forgot and they'll gladly auto-fill that block for you as a repeat customer.

rayiner 8y ago
The 22% tax bracket goes well above the median income. Meanwhile, in 2010 less than 15% of people filed the 1040ez.
- metaphor 8y ago
  Bottom end of 22% tax bracket is ~$43k/annum based on 2019 Notice 1036...that's a $23k margin before hitting the $66k AGI threshold for free file offerings. That number is more like ~25mil, or just over 18% in 2017; +4.6% over previous year[1]. EDIT: I suppose I should probably ask what point you were trying to make? I didn't quite track where you were going with all that. [1] https://www.irs.gov/pub/irs-soi/17in01pl.xls https://www.irs.gov/pub/irs-soi/17in01pl.xls
lightedman 8y ago
1040EZ was dead as of this year. Have you filed your taxes?
vonmoltke 8y ago
> The 5-digit PIN from the previous year's e-filing that's required if you want to expediently e-file this year is enough. Most people aren't going to remember that detail, but the e-filing service you used last year never forgot and they'll gladly auto-fill that block for you as a repeat customer. I was not asked for such a thing, and used a different preparer this year. I was asked to set a PIN for 2018, but I have never had to use a PIN I previously set. I have always been asked for the prior year's AGI for verification. What software asked you for a prior year's PIN to file this year?

losteric 8y ago

> However there is an incentive for that 3rd part tax company to save their customer as much as they possibly can. lol. No. First of all, that myth already assumes a complicated tax code which requires a for-profit middleman. We should be able to minimize our tax exposure without paying corporations. Secondly, the vast majority of filers don't qualify for loopholes. When every tool offers the same refund, competition is for the cheapest/simplest tax experience... while the industry as a whole is strongly incentivized to create an ever more convoluted system, ensuring their yearly rent-seeking continues.

rebuilder 8y ago

If private tax filing products saved money for their users, as compared to a hypothetical, IRS-produced product, what are these companies worried about? They'd have a clear competitive advantage over the IRS product.

mac01021 8y ago
How could they save money, though? The tax code is the same in both cases, and most people's financial lives are not complicated enough to make it any kind of challenge to get the best refund.
- rebuilder 8y ago
  Then the conclusion is the same: no reason not to let the IRS provide their own tax filing service.