8 ms·

The thing people misunderstand with the government not being able to figure it out is because there's a huge variety of complexity that is truly individual base

The thing people misunderstand with the government not being able to figure it out is because there's a huge variety of complexity that is truly individual based. Did you make a contribution to a tax deductible IRA? Did you make a retroactive payment to that account in the following tax calendar year? There's a ton of variables going on here, where the government doesn't have this all-seeing system where everything gets accounted for across the vast array of income sources and employment statuses, dependents, filing status, and all the increments and decrements to those things through time. There's no one central source where all this information is collated and waiting for someone to turn the crank and grind out a number from. Folks have to remember that nothing is implemented by default. The effort to reduce the complexity of the 1040 into 6 new schedules was a great way to factor out those with complicated situations such that the majority of tax payers are oblivious to those nuances. The crux of the matter is that legislators passed into law all these onerous mass of rules to turn various levers to entice and discourage certain things and bite those with progressive tax rates. It is precisely the existence of these rules as to why the government doesn't know what tax valley you land in that huge parameter space. It will not presume to know your specific circumstances but assume that you being aware of your own money and circumstances are in the best position to know these things. At the least one thing I learned is that with tax laws if you have no idea what a thing is it probably in not applicable to you. Needless to say all of this would be much more simple if we just pay a flat tax on all income for all people. Nothing simpler than that.

tibiahurried 7y ago
It is almost 2020 and cash should be banned and all transactions should be electronic. Shouldn't that hard for them to figure out how much do I owe in taxes.
danans 7y ago
> Needless to say all of this would be much more simple if we just pay a flat tax on all income for all people. Nothing simpler than that. That would be a highly regressive tax system that dramatically transfers even more wealth to the already wealthy. But sure, it's definitely simpler. That doesn't make it better.
- jxramos 7y ago
  The regression application here seems flawed, that assumes a fixed percentage is applied to a fixed amount, where that amount is invariant to income. That is not the case with a flat tax where a fixed percentage is applied to a variable amount. The flatness of the flat tax is on the percentage, the amount (income) is the variable portion that will be more or less based on the individual. The percents however will be equal. That's about as equal and fair as you can get as far as I can see, equal treatment for all, namely everyone pays the same percentage whatever that percentage is. It's a simple inequality too: p$XXXX(rich) > p$X(poor) so the rich still pay more right? https://www.investopedia.com/terms/r/regressivetax.asp https://www.investopedia.com/terms/r/regressivetax.asp
  - danans 7y ago
    A flat tax would be more regressive than a progressive tax scheme - it's a spectrum. > That's about as equal and fair as you can get Equal in terms of % of income paid: yes, fair: no way. Your statement makes the assumption that the opportunities to gain higher income are equally and fairly distributed, which they are manifestly not.
    - jxramos 7y ago
      Actually I just tried to tease out a definition from the investopedia article, which I was mislead reading the sales tax example which has a fixed amount (the price of some taxable goods) which holds no sliding scale based on income. The regression appears to be strictly around the idea of burden to the individual and how much disposable income they get left with. Looking at the wikipedia article they claim that flat tax lies between a regressive and progressive tax. > The opposite of a regressive tax is a progressive tax, in which the average tax rate increases as the amount subject to taxation rises. In between is a flat or proportional tax, where the tax rate is fixed as the amount subject to taxation increases. https://en.wikipedia.org/wiki/Regressive_tax https://en.wikipedia.org/wiki/Regressive_tax Where in my statement does the assumption of equal income mobility pop up? Another hit mentions a proportional tax as a middle ground between regressive and progressive gradients. The central point is how things are treated relative to income. https://www.investopedia.com/ask/answers/042415/what-are-differences-between-regressive-proportional-and-progressive-taxes.asp https://www.investopedia.com/ask/answers/042415/what-are-dif...
floatingatoll 7y ago
> Did you make a contribution to a tax deductible IRA? Did you make a retroactive payment to that account in the following tax calendar year? For these specific two examples, the IRS need only introduce monthly reporting requirements for all tax-affecting investments, at which point they once again have sufficient data to do your taxes for you. They already have your SSN, so there’s no excuse not to have integrated reporting. What tax-affecting data does the IRS need to be collecting that they are not, in order to prepare viable estimates taxes for 90% of citizens?
- lazyasciiart 7y ago
  Who your dependants are and what type of filing you are doing (single, married, married jointly)
  - floatingatoll 7y ago
    “If your tax situation has changed in any of the following ways, please check the appropriate box(es) and mail this back to us or submit online; we’ll issue a revised estimate within 30 days and extend your review deadline accordingly.”
    - vehementi 7y ago
      Nah, there's no way to get around that entry level criticism, abandon the plan
      - floatingatoll 7y ago
        If you can cover 90% of citizens with an estimate and a list of predictable circumstance checkboxes that can be phoned in for a new estimate, would that be sufficient to make it viable? (Or, if you’re being sarcastic, please indicate so more clearly.)
    - lazyasciiart 7y ago
      I didn't say ThIS IS IMPoSsIBELE ABAdnON ShiP. Try reading my comment as a response to the specific question that the parent ended with.
jacurtis 7y ago
I do agree, that ultimately there are several deductions that can reduce the taxes you owe in a given year. But most americans don't have enough of these deductions to make a significant difference. So the ideal solution would be that the IRS sends you a letter in January that basically says "You made $XX,XXX this year, you are in YYY tax bracket, and thus you owe $ZZ,ZZZ money". So if they sent that in January, then Americans could have until April 15th to either send a check for the amount owed or to send back an approval for the refund. For most people, the amount the IRS sends us will be accurate. But if you do want to submit additional deductions then there could be a deduction form you fill out that takes the IRS' total and submits deductions against it. Again, most Americans would not need to do anything. Self-employed individuals or individuals with many investments or donations might need submit additional information. But this would be the minority. Most people honestly could just agree with the IRS' determined amount due.
- craftinator 7y ago
  I have had a similar thought in mind for years!
- lutorm 7y ago
  This is how it works in Sweden, at least for people with reasonably simple situations: You get a piece of paper saying "this is what we think you made and how much taxes you should pay". Unless some reporting is wrong, you just log on to the tax website and approve it. They also keep a running tab on your tax account, if you underpay or overpay you have an interest-yielding balance that you can either correct or let sit until next year if the amount is so little it doesn't matter. And it's symmetric with respect to a surplus or deficit, unlike the IRS "if we owe you, then thanks for the zero-interest loan you gave us, but if you owe us then there will be interest and possibly penalties" scheme.
kmonsen 7y ago
Flat taxes would not help at all, because the government still needs to know all your data. After that it is just computations which computers are pretty good at.
- jxramos 7y ago
  Maybe but the point is they'll need to know vastly less data than the smorgasbord of hyper-parameters in use today.
- mikeyouse 7y ago
  This is the essence of the idiotic premise of the current administration that they simplified taxes enough to fit on a post card... The number of brackets isn't the source of tax complexity, it's all of the other shit. That's why that 'postcard' can be accompanied with dozens of supplemental forms. Predictably they killed the 'postcard' after one year: https://www.businessinsider.com/the-republican-tax-reform-postcard-dead-year-2019-7 https://www.businessinsider.com/the-republican-tax-reform-po...
  - nightski 7y ago
    I thought that argument was because they doubled the standard deduction, making it much less attractive to itemize and hence, simpler. What is idiotic about that? For most middle to lower class families it reduced their tax burden and made things simpler. There were a few exceptions, primarily upper middle class families in high cost of living areas, but those were exceptional situations.
    - arcticbull 7y ago
      The net effect of the changes was absolutely tiny for low and middle income folks, and disproportionately rewarded the already well off for whom the marginal utility of money is the lowest. It was a totally regressive change. Just doubling the standard deduction is fine. Capping SLPT was a kick in the nards to liberals on the coasts. It's not just "upper middle class" folks who got hosed, its actually people on the bubble, for whom their SF property tax (1.188%) already eats their entire deduction, and now they're double-taxed on their state taxes. 100K may be upper middle class in Iowa but it won't even get you a studio apartment in SF. That's who gets hosed. And anyone with way too much money got more money. The net of it was dumb.
arcticbull 7y ago
Literally all of that information is already being reported to the IRS by the relevant companies on forms 1098, 1099-whatever, W-2, W-4 and whatever other schedules apply. The IRS defines the rules, they built an engine to take all that into account to ensure you're not lying on your taxes. They just have to literally run it and send you the printout for verification with a remittance stub. The rest is regulatory capture and graft. I wonder if I could FOIA myself my tax return from the IRS for the coming year haha. Flat tax is totally unrelated and a conversation worth having. It's regressive, disproportionately impacts those least well off (the poor) and doesn't make sense when you index the taxes paid to the marginal utility of money. For someone who makes 10K/yr, 10% is 1K and may be the difference between rent and homelessness. For someone who makes 1M/yr 10% is 100K leaving them 900K to futz with. 1K to a poor person ls worth way way more than 100K to a rich person. That's why we don't do it. That's why almost nobody does it. Flat tax is "simple" in the way it's always easier to re-write something from scratch: what you're left with tends to be a bastardization followed by a long and expensive lesson in how it got that way in the first place. (For an example of what it might look like, the Canada Revenue Agency offers this already: https://www.canada.ca/en/revenue-agency/services/e-services/about-auto-fill-return.html https://www.canada.ca/en/revenue-agency/services/e-services/...)
- reaperducer 7y ago
  Literally all of that information is already being reported to the IRS by the relevant companies on forms 1098, 1099-whatever, W-2, W-4 and whatever other schedules apply. But not instantly. And not all of it in time for April 15th. Sometimes those details don't make it to the IRS for years. We don't yet live in a world of instantaneous information transfer about every American citizen to the government. Some people also see that as a good thing.
  - Apocryphon 7y ago
    Then by all means, make citizens send in the relevant documents to the IRS- but don't force them to have to figure it out on their own if the IRS's software can already do it with those docs!
xrikcus 7y ago
We don't need a flat tax rate to simplify the system, though. A progressive tax rate is just fine, as long as it is consistent across all types of income with no, or few, deductions. Inheritance is income. Capital gains is income. We may still need some offsetting - it seems unreasonable to tax capital gains when moving your primary residence, for example (which the US does now, with some unnecessarily complicated value and time based offsets).
JamesBarney 7y ago
Tax brackets are the simplest thing in the world but I've heard this argument several times. Is it made it good faith? Are there really people who think tax brackets make taxes complicated and not 401ks, mortgage interest tax deductions, capital gains, etc? A flat tax is completely orthoganal to the complexity of the tax system(which is almost entirely what counts as income, and what type of income does it count as). If tomorrow we merged all tax brackets into one, no one's taxes would get any simpler, just the poor would pay far more in taxes and the rich far less.
- roenxi 7y ago
  If you have 5 tax brackets, all the other parts of the tax system basically get multiplied by 5 in the number of combinations that could cause weird optimal equilibriums. Eg, maybe the most optimal retirement plan changes depending on whether you are in the 2nd-to-lowest or highest tax bracket. That means advice for one person might be suboptimal for someone else solely because they are in a different tax bracket. Factoring in indirect taxes like payroll, in Australia about half my marginal income is directed to government purposes (Australian tax system). Rationally I should be spending 2-3 days/year of thinking time reading up on changes in tax law and scheming on trying to optimise my tax burden if I believe I can find a way of reducing that by 1% somewhere. Having 5 different tax brackets is just asking for me to try and find some complicated scheme where I filter income to unemployed relatives (eg, the ol' put income earning assests in the wife's name). I don't want to be incentivised to be thinking about that sort of thing, I'd rather just know there are no options. The more combinations there are, the more weird schemes people come up with. Having everyone pay a flat 30% and with some sort of minimum income scheme would reduce the number of alternatives there I have to think about and make it easier to be confident that my taxes are properly optimised.
  - jxramos 7y ago
    > I don't want to be incentivised to be thinking about that sort of thing, I'd rather just know there are no options. That's the flip side to a flat tax, we save a ton on the opportunity costs paid for with time and the development of expertise in all this minutiae. We have entire industries and corporations devoted to taxation. At what point does the benefits gained by our tax complexity get outweighed by the regulatory costs and burdens associated with compliance to that complexity? A quick check > Tax preparation is BIG business – there were 300k people employed at 109k firms in 2012 - generating $9 billion in revenue in 2012. The industry grew over 2% from 2010-2015, and is expected to speed up the pace of growth. Revenues of $11 billion are forecast for 2018. https://www.franchisehelp.com/industry-reports/tax-preparation-industry-analysis-2018-cost-trends/ https://www.franchisehelp.com/industry-reports/tax-preparati... What else could we get with that sort of brain/man power?

tibiahurried 7y ago

It is almost 2020 and cash should be banned and all transactions should be electronic. Shouldn't that hard for them to figure out how much do I owe in taxes.

danans 7y ago

> Needless to say all of this would be much more simple if we just pay a flat tax on all income for all people. Nothing simpler than that. That would be a highly regressive tax system that dramatically transfers even more wealth to the already wealthy. But sure, it's definitely simpler. That doesn't make it better.

jxramos 7y ago
The regression application here seems flawed, that assumes a fixed percentage is applied to a fixed amount, where that amount is invariant to income. That is not the case with a flat tax where a fixed percentage is applied to a variable amount. The flatness of the flat tax is on the percentage, the amount (income) is the variable portion that will be more or less based on the individual. The percents however will be equal. That's about as equal and fair as you can get as far as I can see, equal treatment for all, namely everyone pays the same percentage whatever that percentage is. It's a simple inequality too: p$XXXX(rich) > p$X(poor) so the rich still pay more right? https://www.investopedia.com/terms/r/regressivetax.asp https://www.investopedia.com/terms/r/regressivetax.asp
- danans 7y ago
  A flat tax would be more regressive than a progressive tax scheme - it's a spectrum. > That's about as equal and fair as you can get Equal in terms of % of income paid: yes, fair: no way. Your statement makes the assumption that the opportunities to gain higher income are equally and fairly distributed, which they are manifestly not.
  - jxramos 7y ago
    Actually I just tried to tease out a definition from the investopedia article, which I was mislead reading the sales tax example which has a fixed amount (the price of some taxable goods) which holds no sliding scale based on income. The regression appears to be strictly around the idea of burden to the individual and how much disposable income they get left with. Looking at the wikipedia article they claim that flat tax lies between a regressive and progressive tax. > The opposite of a regressive tax is a progressive tax, in which the average tax rate increases as the amount subject to taxation rises. In between is a flat or proportional tax, where the tax rate is fixed as the amount subject to taxation increases. https://en.wikipedia.org/wiki/Regressive_tax https://en.wikipedia.org/wiki/Regressive_tax Where in my statement does the assumption of equal income mobility pop up? Another hit mentions a proportional tax as a middle ground between regressive and progressive gradients. The central point is how things are treated relative to income. https://www.investopedia.com/ask/answers/042415/what-are-differences-between-regressive-proportional-and-progressive-taxes.asp https://www.investopedia.com/ask/answers/042415/what-are-dif...

floatingatoll 7y ago

> Did you make a contribution to a tax deductible IRA? Did you make a retroactive payment to that account in the following tax calendar year? For these specific two examples, the IRS need only introduce monthly reporting requirements for all tax-affecting investments, at which point they once again have sufficient data to do your taxes for you. They already have your SSN, so there’s no excuse not to have integrated reporting. What tax-affecting data does the IRS need to be collecting that they are not, in order to prepare viable estimates taxes for 90% of citizens?

lazyasciiart 7y ago
Who your dependants are and what type of filing you are doing (single, married, married jointly)
- floatingatoll 7y ago
  “If your tax situation has changed in any of the following ways, please check the appropriate box(es) and mail this back to us or submit online; we’ll issue a revised estimate within 30 days and extend your review deadline accordingly.”
  - vehementi 7y ago
    Nah, there's no way to get around that entry level criticism, abandon the plan
    - floatingatoll 7y ago
      If you can cover 90% of citizens with an estimate and a list of predictable circumstance checkboxes that can be phoned in for a new estimate, would that be sufficient to make it viable? (Or, if you’re being sarcastic, please indicate so more clearly.)
  - lazyasciiart 7y ago
    I didn't say ThIS IS IMPoSsIBELE ABAdnON ShiP. Try reading my comment as a response to the specific question that the parent ended with.

jacurtis 7y ago

I do agree, that ultimately there are several deductions that can reduce the taxes you owe in a given year. But most americans don't have enough of these deductions to make a significant difference. So the ideal solution would be that the IRS sends you a letter in January that basically says "You made $XX,XXX this year, you are in YYY tax bracket, and thus you owe $ZZ,ZZZ money". So if they sent that in January, then Americans could have until April 15th to either send a check for the amount owed or to send back an approval for the refund. For most people, the amount the IRS sends us will be accurate. But if you do want to submit additional deductions then there could be a deduction form you fill out that takes the IRS' total and submits deductions against it. Again, most Americans would not need to do anything. Self-employed individuals or individuals with many investments or donations might need submit additional information. But this would be the minority. Most people honestly could just agree with the IRS' determined amount due.

craftinator 7y ago
I have had a similar thought in mind for years!
lutorm 7y ago
This is how it works in Sweden, at least for people with reasonably simple situations: You get a piece of paper saying "this is what we think you made and how much taxes you should pay". Unless some reporting is wrong, you just log on to the tax website and approve it. They also keep a running tab on your tax account, if you underpay or overpay you have an interest-yielding balance that you can either correct or let sit until next year if the amount is so little it doesn't matter. And it's symmetric with respect to a surplus or deficit, unlike the IRS "if we owe you, then thanks for the zero-interest loan you gave us, but if you owe us then there will be interest and possibly penalties" scheme.

kmonsen 7y ago

Flat taxes would not help at all, because the government still needs to know all your data. After that it is just computations which computers are pretty good at.

jxramos 7y ago
Maybe but the point is they'll need to know vastly less data than the smorgasbord of hyper-parameters in use today.
mikeyouse 7y ago
This is the essence of the idiotic premise of the current administration that they simplified taxes enough to fit on a post card... The number of brackets isn't the source of tax complexity, it's all of the other shit. That's why that 'postcard' can be accompanied with dozens of supplemental forms. Predictably they killed the 'postcard' after one year: https://www.businessinsider.com/the-republican-tax-reform-postcard-dead-year-2019-7 https://www.businessinsider.com/the-republican-tax-reform-po...
- nightski 7y ago
  I thought that argument was because they doubled the standard deduction, making it much less attractive to itemize and hence, simpler. What is idiotic about that? For most middle to lower class families it reduced their tax burden and made things simpler. There were a few exceptions, primarily upper middle class families in high cost of living areas, but those were exceptional situations.
  - arcticbull 7y ago
    The net effect of the changes was absolutely tiny for low and middle income folks, and disproportionately rewarded the already well off for whom the marginal utility of money is the lowest. It was a totally regressive change. Just doubling the standard deduction is fine. Capping SLPT was a kick in the nards to liberals on the coasts. It's not just "upper middle class" folks who got hosed, its actually people on the bubble, for whom their SF property tax (1.188%) already eats their entire deduction, and now they're double-taxed on their state taxes. 100K may be upper middle class in Iowa but it won't even get you a studio apartment in SF. That's who gets hosed. And anyone with way too much money got more money. The net of it was dumb.

arcticbull 7y ago

Literally all of that information is already being reported to the IRS by the relevant companies on forms 1098, 1099-whatever, W-2, W-4 and whatever other schedules apply. The IRS defines the rules, they built an engine to take all that into account to ensure you're not lying on your taxes. They just have to literally run it and send you the printout for verification with a remittance stub. The rest is regulatory capture and graft. I wonder if I could FOIA myself my tax return from the IRS for the coming year haha. Flat tax is totally unrelated and a conversation worth having. It's regressive, disproportionately impacts those least well off (the poor) and doesn't make sense when you index the taxes paid to the marginal utility of money. For someone who makes 10K/yr, 10% is 1K and may be the difference between rent and homelessness. For someone who makes 1M/yr 10% is 100K leaving them 900K to futz with. 1K to a poor person ls worth way way more than 100K to a rich person. That's why we don't do it. That's why almost nobody does it. Flat tax is "simple" in the way it's always easier to re-write something from scratch: what you're left with tends to be a bastardization followed by a long and expensive lesson in how it got that way in the first place. (For an example of what it might look like, the Canada Revenue Agency offers this already: https://www.canada.ca/en/revenue-agency/services/e-services/about-auto-fill-return.html https://www.canada.ca/en/revenue-agency/services/e-services/...)

reaperducer 7y ago
Literally all of that information is already being reported to the IRS by the relevant companies on forms 1098, 1099-whatever, W-2, W-4 and whatever other schedules apply. But not instantly. And not all of it in time for April 15th. Sometimes those details don't make it to the IRS for years. We don't yet live in a world of instantaneous information transfer about every American citizen to the government. Some people also see that as a good thing.
- Apocryphon 7y ago
  Then by all means, make citizens send in the relevant documents to the IRS- but don't force them to have to figure it out on their own if the IRS's software can already do it with those docs!

xrikcus 7y ago

We don't need a flat tax rate to simplify the system, though. A progressive tax rate is just fine, as long as it is consistent across all types of income with no, or few, deductions. Inheritance is income. Capital gains is income. We may still need some offsetting - it seems unreasonable to tax capital gains when moving your primary residence, for example (which the US does now, with some unnecessarily complicated value and time based offsets).

JamesBarney 7y ago

Tax brackets are the simplest thing in the world but I've heard this argument several times. Is it made it good faith? Are there really people who think tax brackets make taxes complicated and not 401ks, mortgage interest tax deductions, capital gains, etc? A flat tax is completely orthoganal to the complexity of the tax system(which is almost entirely what counts as income, and what type of income does it count as). If tomorrow we merged all tax brackets into one, no one's taxes would get any simpler, just the poor would pay far more in taxes and the rich far less.

roenxi 7y ago
If you have 5 tax brackets, all the other parts of the tax system basically get multiplied by 5 in the number of combinations that could cause weird optimal equilibriums. Eg, maybe the most optimal retirement plan changes depending on whether you are in the 2nd-to-lowest or highest tax bracket. That means advice for one person might be suboptimal for someone else solely because they are in a different tax bracket. Factoring in indirect taxes like payroll, in Australia about half my marginal income is directed to government purposes (Australian tax system). Rationally I should be spending 2-3 days/year of thinking time reading up on changes in tax law and scheming on trying to optimise my tax burden if I believe I can find a way of reducing that by 1% somewhere. Having 5 different tax brackets is just asking for me to try and find some complicated scheme where I filter income to unemployed relatives (eg, the ol' put income earning assests in the wife's name). I don't want to be incentivised to be thinking about that sort of thing, I'd rather just know there are no options. The more combinations there are, the more weird schemes people come up with. Having everyone pay a flat 30% and with some sort of minimum income scheme would reduce the number of alternatives there I have to think about and make it easier to be confident that my taxes are properly optimised.
- jxramos 7y ago
  > I don't want to be incentivised to be thinking about that sort of thing, I'd rather just know there are no options. That's the flip side to a flat tax, we save a ton on the opportunity costs paid for with time and the development of expertise in all this minutiae. We have entire industries and corporations devoted to taxation. At what point does the benefits gained by our tax complexity get outweighed by the regulatory costs and burdens associated with compliance to that complexity? A quick check > Tax preparation is BIG business – there were 300k people employed at 109k firms in 2012 - generating $9 billion in revenue in 2012. The industry grew over 2% from 2010-2015, and is expected to speed up the pace of growth. Revenues of $11 billion are forecast for 2018. https://www.franchisehelp.com/industry-reports/tax-preparation-industry-analysis-2018-cost-trends/ https://www.franchisehelp.com/industry-reports/tax-preparati... What else could we get with that sort of brain/man power?