TurboTax vs. Simple Taxes
On April 15, taxes are due. And for almost 30 percent of Americans, TurboTax or some other online software tax program will do the deed for them. Does TurboTax's technical mastery of the tax code cause us to avoid reforming a system that is so fundamentally complex that even experts struggle to comprehend its effects and skewed incentives?
Maybe. In a personal email, Bruce Bartlett wrote on the issue of TurboTax and tax reform. Here is his note, in full:
"I have no doubt that TurboTax will declare support for tax reform and deny that it favors complexity even if it is good for business. This may even be true because one of the problems we have with the tax system today is what I would call fundamental complexity, which is the inability of experts to comprehend many aspects of the system, as opposed to technical complexity of the sort that TurboTax deals with very well.
"The real point I was making in my comment, however, is that Washington tax-types tend to think of the income tax in discrete components or provisions. Thus they worry a great deal about things like the AMT. But average people hardly ever complain about the AMT as opposed to complaining about taxes in general. And my observation is that while people complain about complexity what really matters to them is what they pay. There's no evidence that they are willing to pay much of anything to achieve simplicity and will tolerate a lot of complexity if it saves them taxes.
"I suggested that TurboTax may explain why this is the case. It calculates one's bottom line taxes relatively easily; so easily that one really has no idea what particular provisions of the tax code are saving them taxes and which ones are particularly screwing them. All they know or care about is the bottom line: how much did they pay and will they be getting a refund.
"I'm not sure what this means for tax reform, but I am inclined to think that the promise of simplification is likely to have much less political support than it did in the past. I don't think it's a coincidence that one hardly ever hears about the flat tax any more because one of its prime selling points was simplicity (or at least the appearance of simplicity). You put that together with the fact that some 50% of filers pay nothing and it explains why Michael Graetz has never gotten any traction on his idea of replacing the income tax with a VAT. At least half of tax filers would be worse off."