Economist Austan Goolsbee has a $44 billion idea called the “Simple Return”:
Around two-thirds of taxpayers take only the standard deduction and do not itemize. Frequently, all of their income is solely from wages from one employer and interest income from one bank. For almost all of these people, the IRS already receives information about each of their sources of income directly from their employers and banks. The IRS then asks these same people to spend time gathering documents and filling out tax forms, or to spend money paying tax preparers to do it. In essence, these taxpayers are just copying into a tax return information that the IRS already receives independently. The Simple Return would have the IRS take the information about income directly from the employers and banks and, if the person’s tax status were simple enough, send that taxpayer a return prefilled with the information. The program would be voluntary. Anyone who preferred to fill out his own tax form, or to pay a tax preparer to do it, would just throw the Simple Return away and file his taxes the way he does now. For the millions of taxpayers who could use the Simple Return, however, filing a tax return would entail nothing more than checking the numbers, signing the return, and then either sending a check or getting a refund.
By Goolsbee’s estimates, as many as 40 percent of all Americans could be covered by the Simple Return. He reckons this could save 225 million hours of tax preparation time per year and $2 billion in spending on tax preparers.
It is hard to see how anyone wouldn’t love Goolsbee’s idea. The only possible shortcoming I could see with the plan is that people have income that the government doesn’t know about. If taxpayers have to file their own return, they tend to report that additional income. If they are merely sent a Simple Return that is missing the other sources of income, they are more likely to try to cheat. To combat this, the IRS might have to do random audits of those on the Simple Return, perhaps with punishments such that anyone who abuses the program is forever banned from using it again.
Goolsbee’s plan reminds me a little bit of John Szilagyi‘s old idea of asking for the Social Security number of dependents on their 1040s. Both ideas are simple to implement, and worth billions of dollars. Once you hear them explained, it is hard to argue with either one. Yet somehow, people hadn’t thought to do either before.
Let’s hope that Goolsbee keeps the billion dollar ideas coming. As Barack Obama‘s head economic adviser, there is a real chance that Goolsbee will have the opportunity to put his ideas into action.
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yeh, sure this would certainly work…..in theory…. on a parallel world. think about how many college-educated cpa’s, tax analysts, irs workers, etc that would be out of work. All of these free market ideas work great in the classroom, but the reality is that tens of thousands workers survive of off these jobs, however menial they are.
Well, the previous comment is a strange one.
Because something broken create jobs, we are supposed to let it be that way?
If your job rely on a broken business model, you should begin to think about doing something else for a living (even maybe be creative about it?), not stopping evolution so you can keep your privileges.
Accountants & RIAA, same battle?
But isn’t that part of the issue – how complicated we (to be accurate, our lawmakers) have made the process? How many pages is in the tax code?
I’m impressed by this proposal, though I still like the old right wing idea – eliminating automatic deductions, so people have to pay up themselves every 3-4 months and see what their tax bill actually is…
Heh, I was about to say the same thing as James, only more tongue in cheek. Many people will fight any efficiency improvements, because there will be less work — this is a very common situation with government-created and bureaucratic jobs. Of course, this tax change would overall be beneficial, because people would switch to other jobs that produce a lot more wealth, but that doesn’t make it hurt any less.
Unfortunately, creative destruction is a necessary part of progress. Jobs are destroyed all the time as companies fail, but most of us don’t have the option of lobbying to preserve our jobs after our work has become obsolete. We have to learn and change with the times.
We could make tax returns as complicated as possible, to create even more work for people, but think of how silly that sounds! If you don’t want to create extra useless work, why object to getting rid of useless work that already exists?
#1 is a great example of “make-work bias”. In what universe is a more productive economy with less labor a bad thing? I guess we should go back to hand-copying books instead of using a printing press too, since more people will be employed that way.
A similar method to this is already in use in some other countries. In Norway, where I grew up, you get papers pre-filled and have the option of submitting it online or even by text message. ’tis a beautiful thing.
@james (comment #1) just because peoples jobs are based around a process does not make it worth keeping around around. Just because thousands of peoples paycheck is dependent on say burning piles of cash, and taking care of the pollution caused by burning piles of cash does not mean we need to stifle new innovations to keep that market alive – nor should we supplement it.
Many of the people doing tax preparation have already seen much of their work go away in two forms:
- home tax preparation software
- large tax preparation firms (which use their own software and therefore generally don’t need as many employees to crunch the numbers and research the tax laws every time they do a return).
You hire a small number of people to do the research that goes into writing the software, another small number of people to check and make sure it’s crunching the numbers right, and then some people to run the software for the people that come in the door.
Simplifying tax law in general would put a lot of people out of work, but it’s generally a good idea for most people simply because it saves them time (and in some cases money). Most of the people that cheat on their taxes probably are doing it out of misunderstanding rather than intentionally cheating.
Besides, we wouldn’t need the tax money as much if we didn’t have to pay the $11.1 billion to fund the IRS this year.