Professor Joseph Bankman doesn’t think so. In fact, he knows the U.S. can introduce a much easier and more straightforward process for paying taxes. He’s already done it.
In 2005, Professor Bankman worked with the State of California to create ReadyReturn—a pilot study with a completed tax return prepared by the state (not an individual or tax professional) that was available to low-income and middle-income taxpayers. Professor Bankman discusses the success of the ReadyReturn pilot program in a recent news profile.
A leading scholar in the field of tax law, Professor Bankman is also a clinical psychologist. He teaches mental health law and writes on the intersection of law and psychology. He has developed a course on anxiety psychoeducation that has been taught at Stanford and Yale Law Schools and written on how insights from social psychology might be used in the effort to reduce tax evasion. And, it seems, tax anxiety.
In the following Q&A, Professor Bankman explains why the U.S. tax filing system is so complicated and what can be done to relieve the anxiety we all feel on April 15.
In general, filing will be just as burdensome and annoying for this year as it was for last year. The new law will simplify things for some taxpayers with low-to-moderate incomes. The standard deduction is increased, and with the larger standard deduction, itemizing expenses won’t be useful. The new law will increase complexity for other taxpayers, as they will want to see if they can qualify for the low rates on certain pass-through business income.
Why is the American tax system so complicated?
The complexity is the product of a lot of factors and decisions. We gear tax liability to income, so that less wealthy taxpayers pay less. This requires special provisions, such as the earned income tax credit and income-based phase-outs of benefits.
We use the tax law to encourage activities. We favor home ownership over renting, business income over labor income, assets held for more than a year over assets held for a shorter time period, and so on. This all adds complexity.
Finally, our economic lives are complicated.
You proposed simplifying taxes in California with ReadyReturn. Can you tell us about that proposal? Could we do something similar at the federal level?
The government already knows almost everything it asks us to put on a tax return. Our employer tells it the salary we are paid, our bank tells it the interest we are paid, and so on. In an important pilot program, the State of California gave low-income taxpayers the option of receiving a “ReadyReturn” – a tax return completed with information already known to the state. Taxpayers could examine the return and if they found it correct, sign it (on paper or online). They could make any changes they wanted to it, give it to their preparer to look at, or simply throw it away. Taxpayers loved the program. They sent in thousands of positive comments (such as “Finally government is doing something to make my life easier!”); 98-99% of taxpayers who used it wanted to use it again the next year. The program was made permanent in a modified form on the California CalFile site.
I’ve recommended we adopt a variant of “ReadyReturn” at the federal level. The IRS would allow taxpayers, or their preparers, to download salary, interest and other information the government has collected onto the correct lines of an e-filing program selected by the taxpayer. I call this a data-retrieval system. Taxpayers would still have to verify their marital status and taxpayers who itemize would have to add their charitable contributions. But this would remove much of the stress of filing taxes. Data retrieval is also consistent with taxpayer rights. The government is going to use the salary and other data it has in its computer system. Data retrieval would allow the taxpayer to see what information the government has, and correct it if it is wrong.