WITH tax returns due today, we hear the usual complaints about the onerous tax system and the hassle of filing taxes. Certainly the tax code is incredibly complicated, but in fact filing taxes is too easy, not too hard. With paid preparers and sophisticated software, most Americans are protected from grappling with the worst features of the modern tax system. This may seem like a good thing, but it comes at a steep price.
Once upon a time, Americans realized that something beneficial came from the pain of paying taxes. In the 1920's, Treasury Secretary Andrew Mellon made this case repeatedly. "Nothing," he told Congress, "brings home to a man the feeling that he personally has an interest in seeing that government revenues are not squandered, but intelligently expended, as the fact that he contributes individually a direct tax, no matter how small, to his government."
In 1955, the commissioner of the Internal Revenue Service, T. Coleman Andrews, went so far as to decree that the agency should stop helping people fill out their tax forms. His reasoning? Americans should be educated, not coddled. It did a citizen good to come face to face with his tax bill.
But Mr. Andrews's edict was soon rescinded by his successor. What's more, his decision activated the law of unintended consequences. The I.R.S. pushed fledgling taxpayers out of the nest just long enough to let H&R Block build a new one.
Over the next half-century, more and more Americans turned to the private sector for help with their taxes. By 2002, more than half of all returns came from paid preparers. More recently, software has eased the burden for those determined to go it alone; such programs can reduce thorny tax calculations to a series of simple questions. With each year, Americans have become increasingly insulated from the trauma of figuring out what they have to pay.
So why is this bad? When it comes to taxes, pain can be a good thing. It keeps people vigilant, encouraging them to keep a wary eye on government. That, in turn, exposes problems and encourages reform. Making taxes easy removes an impetus for Americans to force the government to do something about the tax code.
Consider the alternative minimum tax. Congress created the tax in 1969 to ensure that rich Americans don't take advantage of so many deductions and exemptions that they pay little or no tax. But lawmakers failed to index the tax for inflation. Each year, as incomes rise, more middle-class Americans fall prey to this fiscal monstrosity. In a few years, it will ensnare almost a third of American taxpayers.
In a world without paid preparers and TurboTax, taxpayers would face the tedious process of calculating their taxes twice - once under the regular income tax and once using the cumbersome alternative minimum tax rules. But software does that calculation in the blink of an eye - and for taxpayers who have to pay the tax, tell them how to adjust their withholding so that next year they won't even notice that they're paying it.
That's unfortunate, because the alternative minimum tax imposes a significant burden. Today, 3.4 million taxpayers will pay an average surcharge of $5,840, according to the nonpartisan Tax Policy Center. By 2010, almost 30 million taxpayers will pay the tax.
We have created a vicious cycle. Congress has made taxes increasingly complicated and burdensome over the years. To cope, taxpayers have sought help from tax preparers and computer software. But that consumer convenience has bred inertia, shielding bad policy from the wrath of taxpayers who bear the burden of it. This is not to say that we should go back to, say, the 1930's, when withholding didn't exist and taxpayers had to pay their bill in one fell swoop on tax day. But we may have put ourselves in a situation where no pain means no gain.
Joseph J. Thorndike is a contributing editor at Tax Analysts, a nonprofit provider of tax information.
This article was originally published in the New York Times, 15 April 2005.