Taxes are a microcosm of everything wrong with American politics: The system is byzantine, unfair and shaped by lobbyists. Just recently, ProPublica reported that a bipartisan group of U.S. representatives, including Wisconsin’s Gwen Moore, advanced a bill that would prevent the government from offering a free filing option. You can thank Intuit, the makers of TurboTax, H&R Block and other tax-preparation companies that profit from our tax system’s complexity.
It doesn’t have to be this way. Granted, paying taxes will never be a highlight of the year, but retooling our system could make taxes fair, quick and relatively painless — the civic equivalent of a flu shot.
The first fix is to do away with submitting tax forms entirely and instead have the IRS send households a pre-filled form that you can correct or add deductions to. This might sound utopian, but it’s the system in countries as different as Sweden and Estonia.
We could adopt pre-filled forms under the current system, but simplifying our system would make it even more feasible. After all, our current tax code is filled with deductions, even though starting this year, due to the increase in the standard deduction, it is anticipated that 90 percent of households will opt out of itemized deductions in favor of the standard one.
Counterintuitively, another fix is actually raising certain taxes. What separates you from a member of the 1 percent? More annual income is only part of it. Not only do the wealthiest Americans make more money, they make it in different ways — ways that are taxed less.
Capital gains, a catch-all term that includes the profits from selling anything from a share of Apple stock to a condo to a Beanie Baby, are the biggest offender. They essentially are taxed under a parallel set of brackets lower than the ones used for normal income. The justification of this is to encourage long-term investment — if you buy and sell something over the course of a single year, it’s taxed normally. It’s not clear this achieves its intended result, but even if it does, the distinction is perverse: Do we really value the “work” of owning money and property more than the work of people’s actual time and effort?
We could go even further. The wealthiest Americans often get a head start from an inheritance, an advantage that only grows over time. Having millions to fall back on in bad times or earn interest on in good times is a privilege few of us enjoy. Taxes on inheritance and wealth — like Sen. Elizabeth Warren’s proposal — would address this massive disparity while leaving plenty of savings for the wealthy to live on.
Even once taxes are filed, our system has pernicious disparities. As the IRS’s budget has shrunk, it’s become less able to audit the complex returns of the wealthy. Instead, it goes after the working poor and their earned-income tax credits. A ProPublica investigation found that people making $20,000 were more likely to be audited than people making $400,000. Increasing IRS funding and sending the IRS after wealthy tax evaders would make the system fairer and increase revenue. Catching wealthy evaders brings in more money than catching evasion done by the poor and middle class because the wealthy pay more taxes in absolute terms.
Of course, increasing other people’s taxes wouldn’t make yours lower. But wouldn’t ensuring other people are paying their share make you feel better about your tax bill?
It’s true that tax policy doesn’t capture the imagination quite like civil rights milestones or free college proposals do. But in a system that collects trillions in revenue a year, it not only materially affects almost every household, it also shows our priorities as a society.
affects almost every household, it also shows our priorities as a society.
Alys Brooks is a writer living in Madison.
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