Removing inefficiency from filing taxes
I lamented in the previous post that the following process occurs for many of our tax returns:
1) Various distributed computers report wage and interest earnings to the IRS
2) These data are then printed out and mailed to taxpayers
3) Taxpayers fill out and mail their tax forms
4) IRS employees enter this information
5) There is some data verification performed (I can say this because I’ve had my tax forms corrected in the past)
If only there existed a way to link these various computers together via some kind of “interconnecting network” such that we could access our tax information, make corrections, and submit our taxes all from a remote and affordable “personal computing station” located in our homes. You see where I’m going with this.
Obviously this gets harder as the taxes grow more complicated: deductions, capital gains, etc. So I tried to find statistics on how many filers had relatively simple taxes. I defined simple as a tax return with no more than the following common forms required: 1040, Schedule A (itemized deductions), Schedule D (capital gains and losses)
For the tax year 2006, 138,372,000 returns were filed, with the following stats on the total:
- 89.25% computer prepared (10.75% handwritten)
- 36.22% Schedule A attached
- 20.11% Schedule B attached
- 16.50% Schedule C attached
- 16.67% Schedule D attached
First of all, I was blown away by the fact that almost 90% of returns were computer-prepared! Of course, some of those were printed and became paper returns (about 44M returns), but if electronic filing were free things might look different.
Secondly, a full 83% of the returns did not report capital gains or losses, and 63% didn’t itemize deductions. Assuming that the majority of filers who reported a capital gain or loss also itemized deductions, this means that 63% of filers would be classified as having “simple” taxes. Of course, we would need to account for other common forms like Schedules B and C for a full analysis, but I don’t think it would skew the numbers too much since there is likely a lot of overlap.
So is there a candidate who supports this kind of initiative? There’s at least one:
Simplify Tax Filings for Middle Class Americans: Obama and Biden will dramatically simplify tax filings so that millions of Americans will be able to do their taxes in less than five minutes. Obama and Biden will ensure that the IRS uses the information it already gets from banks and employers to give taxpayers the option of pre-filled tax forms to verify, sign and return. Experts estimate that the Obama-Biden proposal will save Americans up to 200 million total hours of work and aggravation and up to $2 billion in tax preparer fees.
