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The Daily

Imagine No More Tax Season

Chris Gaetano
Published Date:
Feb 1, 2016
Hey, everyone, it's tax season! It's time to sharpen your pencils, break out the takeout, and wave goodbye to anything resembling a social life for the next few months. It's an annual tradition that, while unpleasant, remains a fixture in American society, a fact of life as regular as the tide and about as controllable. 
But an article in Accounting Today argues that it doesn't have to be this way. It makes the case that, with increasing emphasis on data collection and storage on the part of banks, non-profits and other entities, much of the information that today needs to be manually collected by the taxpayer could instead be sent automatically to the IRS throughout the year. With this data already collected, it is argued, filing season would become a formality, if it exists at all. 

While no one knows if the busy season could one day be consigned to the dustbin of history, it's worth pointing out that many of the things tax preparers take for granted here in the U.S. don't always work the same way in other countries. For example, while both the U.S. and U.K. withhold income tax, in the U.K. most people don't have to file a return of any sort, and if they do, then the government simply sends them a return in the mail, with some relevant information already filled in. Estonia ups the ante, meanwhile, and simply fills out the entire return automatically and taxpayers either approve the document if they agree or dispute it if they don't, a process that takes about five minutes total. Beyond filing, other countries also have very different views of how secret tax information should be: while the U.S. treats it as a relatively private affair, in Norway it's an open book--everything is accessible to the public. 

However, laws and regulations tend to be very much products of the country in which they are born. The Treasury Department, in a 2003 study on switching to a return-free filing system, noted that while doing so would create significant cost savings for both the taxpayer and the IRS, it also said that the countries that have them tend to have features facilitating its use that the U.S. does not. Namely, they tend to subject most taxpayers to the same marginal rate, the base unit of taxation is the individual, interest and dividend income is taxed at a flat rate and withheld at the source, some capital gains are exempt from taxes, and (perhaps most relevant to the difficulties of implementing such a system in the U.S.) there are few deductions, credits and allowances. 

"Moving to a return-free system without first simplifying the income tax would require substantive changes in tax administration. These changes could shift burdens from taxpayers to other parties, including employers, financial institutions, state governments, and the IRS," said the report. 

So, easier said than done -- but, as technological sophistication increases, perhaps not impossible.