Voluntary Payment of Taxes
Bill Long 4/7/08
An Idea Whose Time Has Come
While taking a break from working through my taxes again this year, I decided to put on paper some thoughts on taxation that have been swirling through my mind for several years. I think these thoughts were prompted by the seemingly great upsurge in patriotism in the wake of the 9/11 attacks. My basic thought is simple--since the strength of our society, as all the post-9/11 patriots were telling us, depends on our patriotism, why don't we test that patriotism by implementing a scheme that will make the payment of federal and state taxes voluntary? Indeed, anyone can pay taxes when they are attended with threats criminal and civil for non-payment or fraudulent misreprestations in our returns. It really means nothing to do so. Surely if you love something, you will put out your fair share (or even more) in dollars to make sure that it continues to function.
The Economics of the Current Tax System
My proposal will not only smoke out those who are patriotic in word but not in deed; it makes good economic sense. Just recently a friend, who has happened to make most of his money in a distinguished career off of tax advice he has given to others, sent me an article about soliciting help in completing tax forms in the US. Here are some of the "facts." There are about 135 million tax returns filed by individuals/couples in the United States each year. I don't know how many more are filed by businesses and non-profits. Two-thirds of 135,000,000 pay for help. That is about 90 million taxpayers. The IRS estimates that the amount average non-business taxpayers paid to have someone prepare their tax return in 2004 was $313 (for standard Form 1040, Schedule A and Schedule D). If we multiply these numbers, we have individuals paying out more than $27 billion to file taxes in 2004. The article goes on to say that most of the returns filled out by "the professionals" are erroneous; indeed, the taxpayer him/herself would have done better to fill out his/her own return. When you add to this $27 billion the huge number of business tax returns, you probably have a figure closer to $50 billion to prepare tax returns annually in the US (in 2004). The number is probably considerably higher by now. If anyone knows how much businesses pay for tax return preparation help, let me know....
To this we need to add the cost to the rest of us of the time used in preparing our taxes. I would say that it takes the rest of us an average of 10-15 hours to do our taxes. At $30 per hour for our time, this would be about $450 for us to prepare our taxes, or about another $16 billion. Then, there is the army of revenue agents hired by the IRS to monitor tax compliance. I would say that the tax-preparation business is, conservatively speaking, more than a $100 billion a year business in the US. If someone wants to defend the system by saying that it provides jobs, I would counter that jobs are also produced by selling crack cocaine in suburbs and urban areas of America. Jobs in and of themselves don't justify anything.
My simple proposal is to eliminate most of this system, a system so complicated that even the "experts" can't get it right, and do it through a two-step process. The first would be a notice sent out to all taxpayers in January telling them what their tax liability would be based on last year's statistics. Better yet, the IRS would post online, by zip code or other easy system, the amount that each person should pay, based on the previous year's tax, if that person wanted to do "his" or "her" share in "keeping America great" (or some such language). The IRS would allow for a person to explain circumstances that would justify a downward (or upward) departure from this amount. But, basically, a person would know by the end of January what his/her "share" was. Second, the person, then, could decide to pay all of it (or twice the amount, if s/he was superpatriotic), part of it or none of it. I think I would support the notion of making the amount of a person's payments public but I would have to think about this a bit more. But, the upshot would be that people would only pay what they wanted to pay in taxes.
The "results" of this would soon be seen. Would our schools decline? Would the roads fall apart? Would the Iraq War end? Maybe we would even begin to engage in public policy debates that would have some substance to them, since the "bottom line" would be whether or not people would decide to pay for the thing that others want. I am tired of people telling me that things are patriotic for me, and then giving me a bill of thousands of dollars annually (for the Iraq War, for example), without even giving me a chance to object. There is no way of making sure, of course, that if a person paid $2,000 less than what was "expected" of him/her, because of objections to the Iraq War, that his/her money would not go to the war. But at least it would sharpen our debates and truly test our understanding of patriotism.
Words are cheap. People can claim they love America, but greatest expressions of love come from those who are not "forced" to love. Making payment of taxes voluntary might usher in a new era of life in the United States. Making them voluntary would also remove levels of unnecessary complexity which are built into the tax compliance system now. The current tax-compliance system is a terrible waste of time, energy and money.
I will close this essay by a little story about the "parking patrol" in my home town, Salem, OR. Every day a bunch of guys/gals drive around in cars (they used to be in golf carts) to a number of metered/time limited parking areas in the City of Salem. They give tickets galore. They enrage citizens with their efficiency. They are known throughout town as the "parking Nazis." It is one of Salem's most pleasant calling cards to the rest of the world as they come to Salem. But, guess what? The cost of enforcement is $600,000 (salaries, cars, benefits, etc.). The amount of money brought in through enforcement is $660,000. It is just about a wash--and it had engendered all kinds of cynicism and ill-will from the citizenry toward city hall. Isn't there a better way?
We tend to tout our creativity or originality in America. My experience, however, has been just the opposite. If you suggest something new, you are history. But maybe we can rise above our past and realize that our tax system, especially in the payment side, is so archaic as to be a joke. Only thing is, no one seems to be laughing.
Copyright © 2004-2008 William R. Long