Friday, April 15, 2005

Tax Preparation

Since today is tax day, it is only appropriate to mention how Byzantine, archaic and sad the system of tax preparation is in the United States. This article says it all:

Americans Spend 6.6 Billion Hours on Taxes

From the article:
    People scurrying to meet tonight's tax deadline might consider this: It's taking you and your fellow Americans 6.6 billion hours to do all that paperwork. The basic tax return - the Form 1040 filed by most people every year - accounts for 1.6 billion hours. The Internal Revenue Service furnished those statistics to the White House budget office, which keeps tabs on the government's bureaucratic demands.
If you consider that, on average, an hour of someone's time is worth about $15 in America, then we are wasting roughly $100 billion on tax preparation every year.

When you consider that there are about 100 million households in the United States, it works out to roughly $1,000 in wasted time every year per household.

What is so interesting is that there are very simple changes that could be made to drastically reduce this number. Two of the most common ideas floating around include the flat tax (where everyone plays a flat percentage rate based on their income) and the national sales tax (where everyone is taxed whenever they buy something). Under either of these two proposals, tax preparation would simplify so dramatically for most people that the cost of tax preparation will reduce to zero.

Assuming that neither of those proposals ever gain enough momentum to pass, then it is clear that tax preparation and filing will be completely computerized within 10 to 20 years. Once cash is eliminated, every transaction where you earn or spend money will be traceable through things like credit card statements. All of this information will download automatically to computers which automatically calculate your taxes in real time, rather than once a year, meaning that the notion of "April 15" will completely evaporate.

Really, when you think about it, the notion of "one day a year when you file your taxes" goes all the way back to the age of paper forms and human beings doing all the work. As we eliminate paper forms and human beings from the process, it becomes real time. "Tax day" on April 15 is an incredible anachronism in the age of computers.

The grandkids will howl with laughter when we tell them about the hours and hours we wasted on tax returns, sitting at our little desks and kitchen tables with crude tools like calculators, paper forms, little paper scraps called "receipts" and so on. "Why," they will ask, "would you purposefully create a system that wasted such a gigantic amount of time? Why did you not instead spend all of that time and effort on something enjoyable and productive???" Why, indeed?



At 12:36 AM, Anonymous Anonymous said...

Please please please please please get rid of April 15 as soon as you can! Doing this would be as important as the invention of fire. What a total waste of time.

At 2:18 PM, Anonymous Anonymous said...

I read that Google execs are paying themselves $0/year from their company. Are they simply coasting along on previous wealth, or are they getting paid some other (non-taxable by a flat tax?) way? That is: is a flat tax still a good idea, if wealthy people can just say: "I make $0/year..?"

At 8:20 PM, Anonymous Anonymous said...

But can't you already do that?

I live in NZ, and my transactions are automatically imported from my bank daily into Microsoft Money. On April 1st (our tax date), I just press "go" and my tax is done.

Can't you get electronic bank data in the US or something? I did notice when I was in California that your electronic payment systems were about 20 years behind us.

At 2:51 PM, Anonymous Anonymous said...

You need to look into the FairTax.

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