Congress knows that as long as the people at Intuit who are writing the TurboTax program can figure out the tax laws, Congress doesn't have to write a tax code that anyone else can fully understand.
A few years back, a bright student and I were conversing about this very topic when she made an intriguing suggestion. Instead of Congress writing tax laws in a legal form of English that mere-mortal accountants and attorneys can understand, and then having Intuit put it into computer code, why not have Congress simply pass the computer code itself? In other words, rather than say, "Your tax is your income minus these deductions, multiplied by these tables -- now go buy a private computer program to try to get it right," Congress could simply say, "Your tax is what this computer language says you owe after plugging in the income and expense information that it calls for."
If Congress had actually followed Prof. Bogdansky's advice, Treasury Secretary Timothy Geithner would have been home free with a TurboTax defense.
We need a tax code PEOPLE can understand. A National Tax Bee would be a great way to highlight this need.
Congress is getting on the case of banks for writing mortgage contracts and credit card agreements with "gotcha!" provisions that hapless ordinary Americans can't understand. They have been getting on the case of health insurance companies for writing applications with "gotcha!" questions that ordinary Americans can't understand. Those gotcha! provisions come back to bite them later on, when the banks raise rates and insurance companies cancel coverage.
Congress needs to get on its OWN case, because the tax code it writes is even more complex, convoluted, and hard to understand than any mortgage contract, credit card contract, or insurance application that I've ever seen. Try reading it for yourself and you'll soon see what I mean. It is full of doublespeak. It has provisions that may look readable and clear enough, but then if you keep on reading, it turns out that later on the code says something completely different that completely supersedes and contradicts what you thought you understood earlier.
The American public, who once took a certain amount of gritty pride in figuring out their own income taxes, has given up trying to understand it. If the Treasury Department Secretary and the Chairman of the House Ways and Means Committee can't understand tax law, what hope do the rest of us have?
A National Tax Bee would focus public attention on the fact that our income tax code is an important part of our social fabric, our social contract.
It OUGHT to be something that all of us can fundamentally understand.
Virtually every major decision we make in our life can affect our income tax liability, often in profound ways:
birth of children
buying a home
selling a home
financing a home
saving and investing for the future
moving to take a new job in another location
starting a business
growing that business
selling the business
Understanding an income tax with so many important ramifications should NOT be the province of an elite few computer programmers!
At our VITA site, our student preparers take the time to walk our clients line by line through their returns so that they understand the documents we asking them to sign.
Many clients gratefully tell us that no other tax preparer has ever bothered to do that before.
This is so very sad and very wrong!
The income tax law requires that taxpayers sign their returns UNDER PENALTY OF PERJURY. It is understandable but wrong that preparers do not take the time to explain the documents they are asking taxpayers to sign. The taxpayers lead busy lives and most are eager to find out the amount of their refund. And there is so much boilerplate gobble-di-gook on their tax returns, that it's understandable that many taxpayers think it's hopeless to understand their tax returns, so they don't even try to do so.
But what they don't understand at the time they sign the return CAN and DOES come back to bite them later. (Check out the sad story of a taxpayer in the video in my earlier post. She authorized her tax preparer to efile her return but didn't even bother to look at the tax return until two years later, when she got an audit notice from the IRS. Only then did she pull out her copy of the return and discover that the preparer had completely fabricated deductions. As she put it: "Uniform expenses? I'm a travel agent. I wear what I want to work." These are the kinds of questions taxpayers need to ask their preparers BEFORE they authorize them to efile.)
Taxpayers need to be able to "kick the tires" before they sign their tax returns. They need to be able to ask their tax preparers (or their tax software), "Hmmm, where on here did you put that information I told you about the money I took out of my IRA last year?" or "Why are you reporting deductions for uniform expenses? I don't wear a uniform at work!"
We are talking about a LOT of money here.
Over the past six decades, about 3 out of every 10 dollars in Americans' income has gone to taxes of one form or another: income, payroll, excise, property, sales. Nobody likes taxes, but many people believe the income tax can and should be the fairest tax. Many Americans, including some low-income Americans, face MARGINAL income tax rates of 40% or more, when all is said and done.
And the hard economic reality is that however high taxes may currently be, they are NOT enough to sustain the commitments the country has already made to the future. Tax rates need to go up. The current rates are possible only because the entire world is still willing to lend our government vast amounts of money at phenomenally reasonable interest rates. This situation will NOT last.
With so much at stake, Americans deserve to understand their income tax system MUCH better than they do now. If Treasury Secretary Geithner, House Ways and Means Chair Rangel, and a host of presidential appointees can't understand their income tax obligations, what hopes do ordinary Americans have?
But Americans are busy with their day to day lives. It's hard to get their attention on important long-term problems.
A National Tax Bee could be a start in educating Americans about our current tax system AND getting them to demand a tax system all Americans can truly understand and support.