Another April 15 has come and gone.
The inaugural and dreaded Tax Day initially fell on March 1, 1914. There was no withholding tax, so the full amount of federal taxes owed by individuals was payable on Tax Day. In 1919, the date was moved to March 15, and in 1955, the date was moved again to April 15.
This year, the last day for Americans to file their 2022 income tax returns was April 18. This was because April 15 fell on a Saturday (Tax Day cannot occur on a weekend), and April 16 (the IRS-recognized Emancipation Day holiday in Washington D.C.) fell on a Sunday (so it was celebrated on Monday, April 17).
As happens every year, article after article was written about how the tax code is too large and complex, which makes figuring one’s income tax very confusing and time-consuming. Suggestions are often offered to simplify taxpaying. Sometimes libertarians even contribute their two cents’ worth to the topic.
Adam N. Michel “is director of tax policy studies at the Cato Institute, where he focuses on analyzing the economic and budgetary effects of taxation in the United States.” In his recent article “Four Ways to Simplify Taxpaying,” he points out:
The U.S. tax code is too complex, and structural reforms are needed.
The United States has at least 6 different sets of rules on how a child might qualify a family for tax benefits, more than 15 distinct tax programs targeted at higher education, 18 different tax-advantaged savings accounts, and 14 different deductions for people who itemize. The task of merely describing how these tax programs work is the subject of hundreds of pages of IRS instructions and countless inscrutable forms and worksheets.
He then suggests:
Short of remaking the entire tax system, simple changes could help streamline some of the most complicated sections of the individual tax code and allow Congress to lower tax rates with the savings.
Policymakers should strive to design a tax system in which Americans can more easily understand what they owe in taxes and why.
Simplicity is only one of many important goals in designing a tax system, but it should not be neglected.
Congress should streamline definitions and eligibility criteria for child and dependent benefits, consolidate education tax subsidies, simplify the taxation of savings, and repeal itemized deductions.
Elsewhere in his article, he proposes “modest reforms to streamline child-related tax benefits, education subsidies, retirement and other savings accounts, and itemized deductions.”
Although there is no question that the tax code is too large and complex, and that figuring one’s income tax is too confusing and time-consuming, this libertarian plan to simplify taxpaying misses the mark.
First, for the typical American family with children and one or two adults who work a regular job and receive a W-2, a little bit of time with a computer and a tax program like Turbo Tax takes most of the complexity out of filing income taxes. For over 50 years, the Volunteer Income Tax Assistance Program (VITA), which is staffed by volunteers at community centers, libraries, schools, and local nonprofit organizations who are trained to provide basic tax preparation assistance, has helped those with low incomes, a disability, or limited English-speaking skills prepare their taxes. Tax Counseling for the Elderly (TCE) also provides free tax help, primarily for taxpayers who are 60 and older.
Second, the complexity of the tax code is the least of the problems with the tax code. The tax code is highly progressive, so much so that every year, the top 1 percent of taxpayers pay more in income taxes than the bottom 90 percent combined, and the bottom 50 percent of taxpayers pay only about 3 percent of the income taxes. The tax code also takes too much money out of the hands of Americans. The current incarnation of the tax code has seven tax brackets. Five of them are over 20 percent, with the highest rate being 37 percent. This is on top of the 12.4 percent (split equally between employer and employee) Social Security tax that Americans pay on the first $160,200 of their income and the 2.9 percent (split equally between employer and employee) Medicare tax that Americans pay on every dollar of their income. It doesn’t matter how simple the tax code is if the federal government is taking that much of our money.
And third, plans to help the government simplify how it robs us so that Americans feel better about paying their taxes flies in the face of the libertarian view of the tax code: The tax code should not exist, because taxation is theft. This, however, does not mean that libertarians are naïve. Since the United States has a tax code and an income tax, and since the United States has armed IRS agents — and these things are not going away anytime soon — any change to the tax code that results in more money staying in the hands of Americans and out of the hands of Uncle Sam is a good thing. Therefore, the only plans that libertarians should be coming up with are plans that result in the federal government lowering tax rates, shrinking the tax base, expanding tax credits, and increasing deductions — in short, anything that lets Americans hang on to more of their money.
In short, libertarian plans to simplify or reform the tax code, or to make it flatter or fairer, miss the mark by a wide margin.