The voices of Tax Policy Center's researchers and staff
Commenter dh has raised a provocative question in response to my post the other day about why I hate filing taxes:
“I wonder if the use of tax software actually increased the complexity of the tax code. Perhaps the fact that AMT was reaching a large swatch of the population would (have) been addressed sooner if everyone was required to hire an accountant rather than buy a $50 program to figure it out.”
“We have created a vicious cycle. Congress has made taxes increasingly complicated and burdensome over the years. To cope, taxpayers have sought help from tax preparers and computer software. But that consumer convenience has bred inertia, shielding bad policy from the wrath of taxpayers who bear the burden of it.”
I don’t think there is any way to prove it, but I suspect there is some truth to this. I once asked a Ways & Means Committee staffer why he thought people would put up with an especially complex measure the panel had just approved. “Turbo Tax,” he replied with a smile.
As Joe and dh asked, would taxpayers have accepted the insidious creep of the Alternative Minimum Tax without software to numb them from its consequences?
Without these commercial products (or paid preparers) two things would likely have happened. First, many who owed the tax but did not know it would have blissfully filed their regular tax only to get hammered later with interest and penalties. That alone would have generated more than a little backlash on Capitol Hill. Second, those who did realize they had AMT liability would have tried to fill out the impossible form. That would have had them sharpening their pitchforks for another march on Washington.
There is undoubtedly a correlation between the rise of this technology and complexification of the Code since the 1986 tax reform. I don’t think one can prove true causality here, but a new paper by MIT’s Amy Finkelstein may hold one clue. Amy concludes that tolls on roads with EZ Pass are as much as 40 percent higher than they’d otherwise be simply because people have no idea how much they are paying.
There is one other issue to keep in mind as you piece together this puzzle: Much of the Code’s complexity is there to cut taxes, not to raise them. Think tax expenditures.
Besides, it is never possible to predict what will cause a populist uprising. Who knew, for instance, that with trillions of dollars of federal bailout money flowing to busted financial institutions, it would be a few million in bonuses that set off a revolt.
Still, I think Thorndike and dh are on to something. Problem is, we can’t ban the software. It has been suggested before, but perhaps the only solution is to require lawmakers to fill out their own taxes by hand. Lock them in a room without food or water, a colleague proposes, until they finish or give up. Put it on YouTube.
Posts and comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.