Did you get your taxes done? I hope so (or that you filed for an extension if you didn’t). Federal income taxes are a big pain in the neck, involving entering data from forms, making sure you’re checking all the right boxes, and making sure that you’re accounting for everything properly to pay the lowest amount you can without screwing up and making a mistake that will lead to payments and fines later.
Well, at least if you’re an American. While our peers in other countries also have to file federal tax returns each year, you might be surprised – again, if you’re an American – to find that they don’t have to do any of this. Why? Because their revenue agencies already know how much money they made, how much interest they made, if they’re married, and so on. So they send them pre-populated forms. They check them over and make any corrections (if needed, which is not the case most often) and they’re done.
What countries have systems that make it this easy for taxpayers? Well, the UK. Australia. Denmark. Sweden. Germany. Finland. Norway. Estonia. New Zealand. Japan. The Netherlands.
There are really two things that make this possible. They have simpler tax codes. Everyone in the US agrees that we should simplify our tax codes, until it’s time to actually close arcane loopholes, at which point the idea dies. However it is possible, as our neighbors have shown us.
The second is that they have the political will to do it. If it seems weird that it requires political will to save taxpayers an irritating, stressful burden, that’s because that burden creates a profitable business. For Intuit, for H&R Block, for a lot of accountants – if filling out tax forms was easy, we wouldn’t spend $409 billion and 8.9 billion hours on it. Yes, that’s right, over $400 billion on an activity that produces nothing of economic value.
Planet Money has a great episode on this that’s worth a listen. One of the interviewees makes a great analogy: imagine if every month you got a credit card bill with nothing on it, and you had to list out everything you’ve charged and the amount and add it all up before paying it.
That’s our tax filing system.