Taxing Ourselves by Unknown

Author:Unknown
Language: eng
Format: epub
Published: 2021-06-24T16:00:00+00:00

Reason for Hope: Technological Improvements and the Promise of a Return-Free System

Modernization of IRS operations and advances in tax preparation technology promise continual, although gradual, improvement in the tax-filing process. The most notable recent innovations are electronic filing and, especially, the use of software to prepare tax returns. As noted above, a lot of progress has already been made in shifting toward electronic filing, and the rapid growth in the use of tax preparation software may have contributed to an apparently substantial decline over time in the number of hours that taxpayers report devoting to the tax-filing process. By fiscal year 2014, 84 percent of individual income tax returns were filed electronically.66 Technological advance promises continued gradual improvements of this nature in the future.

Before we get too self-congratulatory, we should point out that in many other countries, such as the United Kingdom and Japan, most taxpayers need not file a return at all! These countries manage this by having a very simple tax base for most taxpayers and a sophisticated system of employer withholding (called PAYE, or Pay As You Earn, in the United Kingdom) that ensures that at year-end exactly the appropriate amount of tax has been withheld and remitted to the tax authority by employers: no refund is received, and no tax is due. This system is facilitated by the fact that interest and dividend income are taxed at the source of payment at a fixed rate applying to the vast majority of taxpayers; in addition, because the system is individual-based rather than family-based, it is easier to get withholding of tax liabilities right for two-earner couples. Withholding can accurately reflect itemized deductions if they are implemented in certain ways. For instance, in the United Kingdom, when there was still a income tax subsidy for mortgage interest, the tax saving from deductibility of mortgage interest at a flat 15 percent rate was applied directly at the bank level.67 Similarly, the United Kingdom’s government directly provides approved charitable organizations with a matching contribution equal to 25 percent of individual donations to those organizations, and many taxpayers take advantage of this through payroll deductions administered by the employer. For most taxpayers this is the only tax benefit available for donations, so there is no need to file a tax return to report donations and claim tax benefits. Only the small minority of taxpayers with marginal income tax rates above 25 percent need file “self-assessment” returns to claim additional tax benefits for their charitable donations.68 The United Kingdom’s experience clearly demonstrates the potential for operating an income tax system where most people don’t have to file a return.69

In fact, at least thirty-four countries use some version of a no-return system for some of their taxpayers.70 Almost all of these countries use some form of exact withholding as in the United Kingdom, but some countries such as Denmark and Sweden achieve it with a system called tax agency reconciliation (TAR).71 Under a TAR system, the tax authority calculates tax liability based on

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.