How Other Countries Handle Taxes

As I join my fellow Americans in dreading tax day, it is worth reflecting on whether it needs to be this way. Fortunately, the rest of the world provides us with plenty of alternatives and counterexamples.

In an interview with PBS NewsHourT.D. Reid, a former Washington Post columnist, shared insights from his travels across the world in search of a better tax system. (About which he has published a book, A Fine Mess: A Global Quest for a Simpler, Fairer, and More Efficient Tax System.

He starts with New Zealand’s “BBLR” policy: broaden the base, lower the rates. Basically, the government makes everything taxable — from the free parking covered by your employer, to the mortgage you take out for a house, it all counts as income to you and thus you get no tax breaks.

As it turns out, making just about everything potentially taxable end up being a win-win for everyone: because it isn’t losing revenue through various tax breaks and loopholes, the New Zealand government can afford a lower than rate (half that of the U.S.) while bringing more money per capita. Hence it can fund education, universal healthcare, and other public goods without burdening businesses and individuals.

Reid also observed that most New Zealanders subsequently had an easier and quicker time doing taxes: it wasn’t something they had to dread every year.

The blase attitude towards taxes was seen elsewhere as well:

I was in the Netherlands on March 31, the day before their taxes are due.

I was with an executive who makes $200,000 a year, two mortgages, a lot of investments. He’d have to fill out 12 forms in America. I said, Michael, how do you pay your taxes? He pops a beer. He goes online. The government’s filled in every line. If the numbers look right, he clicks OK. It takes five minutes.

And, in Japan, you get a postcard from the IRS that says, we think you made this much. We withheld this much. We owe you a refund of that much. We will put it in your bank on April 1. It takes one minute, if you think the numbers are right.

And I said to my friend Togo, you know, in America, people spend hours, days filling out these forms. And he said to me, why would anybody want to do that?

Reid also points out that the U.S. government could easily do our taxes for us, a proposition that seems unthinkable even though it makes sense upon further reflection. After all, IRS does have the same financial information we do. Dylan Matthews over at expands on this argument further:

Here’s the thing about [tax] forms: The IRS gets them too. When Vox Media sent me a W-2 telling me how much it paid me in 2017, it also sent an identical one to the IRS. When my bank sent me a 1099 telling me how much interest I earned on my savings account in 2017, it also sent one to the IRS. If I’m not itemizing deductions (like 70 percent of taxpayers), the IRS has all the information it needs to calculate my taxes, send me a filled-out return, and let me either send it in or do my taxes by hand if I prefer.

This isn’t a purely hypothetical proposal. Countries like Denmark, Sweden, Estonia, Chile, and Spain already offer “pre-populated returns” to their citizens. The United Kingdom, Germany, and Japan have exact enough tax withholding procedures that most people don’t have to file income tax returns at all, whether pre-populated or not. California has a voluntary return-free filing program called ReadyReturn for its income taxes.

It is interesting how countries most Americans regard as socialist and bloatedly statist actually impose fewer tax burdens on businesses and individuals. It goes to show that you can have it both ways: promote prosocial state policies without sacrificing entrepreneurial freedom — provided you do not have powerful special interests who benefit from the status quo:

So why hasn’t return-free filing happened yet? The short answer is lobbying, and in particular lobbying by companies like Intuit. In 2013, ProPublica’s Liz Day wrote an incredible exposé on just how hard Intuit has lobbied to stop return-free filing from becoming a reality:

[In 2007] a bill to limit return-free filing was introduced by a pair of unlikely allies: Reps. Eric Cantor, R-Va., the conservative House majority leader, and Zoe Lofgren, D-Calif., a liberal stalwart whose district includes Silicon Valley.

Intuit’s political committee and employees have contributed to both. Cantor and his leadership PAC have received $26,100 in the past five years from the company’s PAC and employees. In the last two years, the Intuit PAC and employees donated $26,000to Lofgren.

…In 2005, California launched a pilot program called ReadyReturn. As it fought against the program over the next five years, Intuit spent more than $3 million on overall lobbying and political campaigns in the state, according to Dennis J. Ventry Jr., a professor at UC Davis School of Law who specializes in tax policy and legal ethics.

They haven’t stopped; in 2014, Day reported that Intuit was involved with an astroturfing effort meant to manufacture the appearance of grassroots opposition to automatic filing. Intuit spent $13 million lobbying Congress from 2011 to 2015, with 41 lobbying reports relating to taxes in 2015 alone. Most of the reports reference lobbying to “enhance voluntary compliance” — a euphemism for opposing automatic filing.

In this, Intuit and other tax prep companies had a powerful ally: Grover Norquist. The anti-tax crusader vehemently opposes automatic filing on the grounds that it makes tax season insufficiently nightmarish, which might reduce people’s aversion to taxes and make it easier for politicians to pass tax increases. So even though Ronald Reagan himself supported automatic filing, Norquist has helped make the idea dirt in the eyes of conservative legislators.

All this despite both conservatives and liberals alike supporting return-free tax filing. We can only hope that Americans will soon reach a breaking point after a few more stressful tax days. Then again, maybe our famously anti-tax political culture is, ironically, too used to hating taxes to actually consider streamlining them.

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