Tax Prep Software Must Die
And yet every March and April finds me hunched over the keyboard, a folder of documents to my left and a tax-prep application on the screen, and wondering why we put up with all this garbage. It's not the amount of money I fork over that bothers me; it's the fact that I have no idea how this number gets calculated, that I have to trust a program to do the math for me, and that I can't even get the two dominant programs in the market to come up with the same number.
I don't blame the developers of applications like Intuit's TurboTax and H&R Block's TaxCut for this situation. While I have critiques with the finer points of these programs (especially the Web-based version of TaxCut, as noted in today's column), I feel a great deal of sympathy for the programmers who have to enmesh themselves in the horrifying awfulness of the tax code.
I'd like to be constructive, so here are a few suggestions to improve tax-prep apps within the constraints of the current tax code:
* Be smarter about auto-completing things. I have almost never seen a W-2 that didn't list the same number on the federal and state "wages, tips, other compensation line," and which also didn't repeat the same figure in boxes 2 and 3. So once I type a number into one of those spots, fill it into next one (while highlighting the auto-filled figure as something I should double-check against the W-2).
* In a similar way, why can't typing my employer's federal Employer Identification Number allow the app to look up its name, address and state EIN for me? There must be a database that allows that, right?
* Anytime a tax-prep app shows a number it's computed, I should be able to double-click that number to see what math produced that result. (TurboTax does with its overall number, but you can't then inspect the work behind such constituent factors as "adjustments to income").
As for the tax code itself... here's what I'd recommend if we want to stop wasting our collective ingenuity and initiative on the fundamentally unproductive task of tax compliance:
1. I don't have a problem with a progressive income tax. The marginal value of an extra dollar increases as you have fewer of them in your bank account; it's fair to raise rates for higher incomes. Besides, any chimp can figure out how to look up the balance due in a tax table (PDF).
2. But we should be really hesitant about treating different types of income differently. Every time we add a different rate for a type of investment or occupation -- the 1099-DIV on my desk lists three flavors of capital gains and two kinds of dividends -- we increase the record-keeping and accounting burden for everybody. And by privileging some economic activities over others, we only increase the motivation for unprivileged companies and people to hire their own lobbyists so they, too, can get their own special treatment in the tax code.
3. Likewise, we should reserve tax deductions and credits for the most important social goals. It's one thing to reward donations to charity with a deduction, but I suspect that most of these attempts at social engineering fail in practice, perhaps because people don't know these provisions exist and therefore do what they'll do anyway. There are simpler ways to reward virtue that don't require adding lines to the 1040. Example number one: If we want to motivate people to use less oil, heed my colleague Warren Brown's advice and raise the gas tax already.
If you've read up on behavioral economics, these ideas shouldn't sound strange. This branch of economic theory (one that my colleague Michael Rosenwald explores in his excellent Financial Lobe columns) discards the "rational actor" model taught in freshman-year econ classes to look at what makes distracted, busy, semi-informed and emotional customers act in real life. I find it enormously helpful in explaining why the economy is such a mess.
Apparently, President Obama's advisers buy into behavioral economics too. Many of those advisers themselves say they've been tripped up by the complexity of their own tax returns. And the president has said he wants to rewrite the tax code to make it simpler and fairer.
So I'll ask this directly: Mr. President, won't you please spare me from having to write this tax-code rant again?
March 12, 2009; 11:32 AM ET
Categories: Gripes , The business we have chosen
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