I don’t know why assume that in every country in the world that is free. In my European country until 15 years ago or so you had to hire someone to do your taxes for you, and currently the free method only works for the most simple tax filing.
the UK seems to be going in this same bad direction now "As part of our journey to modernise and digitise our filing routes, all accounts must be filed using commercial software from 1 April 2027."
https://changestoukcompanylaw.campaign.gov.uk/changes-to-acc...
you used to be able to do this yourself on the gov website for free
Tell me about it! The bottom tier subscription services are also subtly crippled to make filing MTD tax returns difficult. eg. Xero's lowest tier doesn't let you easily add cash payments (without jumping through hoops for each payment).
I never understood why the Revenue can't provide a set of simple online forms for tax returns like India does. Heck, India provided Excel sheets with VBA script for many years, that produced an XML which can be submitted as tax filing. Tax filing is now a 15-minute affair for a salary-only income in India.
The complexity is a feature not a bug. If you have more complexity, you have more opportunities for loopholes. Those loopholes are currently used by those wealthy enough to hire creative firms to help them get through them and minimize owed taxes
If there’s one outcome I really hope from AI automating work, it’s taking away the advantage the monied class has in this regard. Then perhaps there’s less purpose for the complexity
Maybe the AI will create a level playing field and make the tax prep / loophole industry collapse.
Or maybe the free models will start responding with
"""
It looks like you're asking for help with tax preparation. I recommend our designated AI tax service [link to service that asks you to upgrade your plan or pay a one-time fee].
"""
They are operating free models at a loss now, but at some point they are going to have to turn a profit. At that point tax prep becomes a revenue stream for AI as well.
>The complexity is a feature not a bug. If you have more complexity, you have more opportunities for loopholes. Those loopholes are currently used by those wealthy enough to hire creative firms to help you get through them
Agreed that the complexity is a feature but it's not for the rich ( though the rich will take advantage of it, and why not? ) . It's mostly for the powers that be. If there were a 'flat' tax ( and one could argue what constitutes a flat tax) the rich will be more willing to pay that flat tax.
I'd say complexity support a very large govt, keeping several people employed including accountants, tax software companies etc. It serves the parasite class.
> If there were a 'flat' tax [...] the rich will be more willing to pay
That's just because moving from progressive-taxation to a flat-tax reduces how much they pay!
The "simplicity" of the math done by their usual accounting firm that does their taxes for them is irrelevant by comparison.
_________
To illustrate why the burden shifts, suppose the nation of Elbonia needs a constant $540 to operate, and it moves from a progressive tax to a flat tax.
This year, progressive taxation, rising %:
90 peasants each earn $10 and are taxed 20% -> $2 per peasant.
10 nobles each earn $90 and are taxed 40% -> $36 per noble.
Total collection is $540.
Next year, flat tax, same % for all:
90 peasants each earn $10 and are taxed 30% -> $3 per peasant.
10 nobles each earn $90 and are taxed 30% -> $27 per noble.
Total collection is $540.
It should be no surprise that most of the Elbonian nobles are "willing" to see that change happen. Meanwhile, the peasants that are already living paycheck-to-paycheck have to plan how to cut back on luxuries like keeping their teeth.
Another issue is that super wealthy folks don't get their money from regular wages. They borrow money from banks using their assets (e.g., stocks) as collateral. They pay back the loan at relatively low rates. The borrowed money is not taxable income.
> That's just because moving from progressive-taxation to a flat-tax reduces how much they pay!
That's what everybody says but then you look at effective tax rates in real life and the highest ones are paid by people like doctors rather than billionaires because the complicated system is the thing that allows the billionaires to pay less.
Meanwhile you don't need a complicated marginal rate system to get a progressive effective rate curve. Just give everybody a tax credit in a fixed amount and then use the same rate for everyone. Here's your table when you do that:
90 peasants each earn $10 and are taxed 42.5% and receive a $2.25 credit -> $2 per peasant, effective rate 20%
10 nobles each earn $90 and are taxed 42.5% and receive a $2.25 credit -> $36 per noble, effective rate 40%.
These numbers, of course, assume that as in your example you need the average effective rate (by earnings) to be 30%. By comparison, for example, US federal receipts as a percent of GDP have been stable at ~17% of GDP since the end of WWII (and were dramatically lower before that). Your numbers would be more in line with what would happen if both federal and all state taxes (including e.g. property tax) were replaced with this system.
It's worth pointing out that the Treasury takes in tax revenues throughout the year. The sources of that income are:
50% Payroll Income Tax. 35% Social Security Taxes. 7% Business Taxes. 7% Excise Taxes.
70 years ago they were:
25% Payroll Income Tax. 25% Social Security Taxes. 25% Business Taxes. 25% Excise Taxes.
I think the priority is fixing this distribution to levels which were historically perceived as being more fair. The wealthy are one problem. The oversized corporations are the everlasting machine which drives them.
The tax brackets are not what make taxes complicated. Knowing how to categorize different types of income is what makes taxes complicated.
The flat tax would not make tax preparation any bit easier. They only thing it would do would be to eliminate progressive taxation. In other words, the rich would pay less. The poor would pay more.
Of course, this is not to say they always are stupid or illiterate, it's again usually just another form of exploitation, they don't have (or feel they don't) time to read it.
Which is arguably explicit exploitation/enslavement - the Walmart door greeter doesn't have a difficult job, however their role doesn't allow them to do anything that would benefit themselves. I wouldn't care if they were reading their phones or a book, but noo... can't have the peasants educating themselves.
And they aren't paid enough, so when they return home, they likely don't have any time after needing to perform meal prep, taking a second job, etc.
The USA is a third world country in many respects.
The UK has online forms for this, even for businesses, but is moving away from this as part of "Making Tax Digital" - i.e. they are axing paper forms to doing away with the online equivalents as well.
Then again, most people here who have salary only income do not have to fill in a tax return at all - only if they have certain types of income (self-employment, capital gains or investment income) above a threshold.
I've been doing Self Assessment for 25 years. In the first few years it was fill in a colourful paper form which won awards for clear English etc. Nowadays it is online with many details pre-filled in. At the end you can download a .pdf that looks exactly like the paper form or not bother.
They do provide the forms, you simply fill them out. I did that every year without consulting any specialist or extra services. Much easier than in Europe. It was a 20min affair.
> I never understood why the Revenue can't provide a set of simple online forms for tax returns like India does.
Did you read the article? The TL;DR summary is that the US government has proposed doing this in the past, but has been lobbied against it by companies that seek to profit from software to help prepare tax returns.
The tax system in the US is complicated, you've got different state taxes as well as the federal, for example if your kids go to a different state for school than you live, add that your partner might work in another state, maybe they have different relief taxes for disasters through the year. It might very well be a feature but it is complicated, and the more activities you have, maybe investments, a small business, multiple jobs. It becomes overwhelming for non accountants.
Even the complex cases fit into an overarching tool. Most people in the UK don't submit tax returns because they don't have any income beyond their salary. Even if you do, you then use the tool which asks you a series of questions like "do you have a student loan?" and "did you receive any dividend income?", then you have to fill in some next level detail if those are true. I'm sure there are people with weird tax arrangements that need to work outside of the wizard, but I'd wager it was less than 1 in 1000, and those people tend to have the money to pay for fancy accountants to do it for them.
You also only need to fill in a tax return if you have income (or capital gains) above a threshold. SO having some interest paid on a savings account etc or a small side business or selling an asset at a small profit above what you paid for it does not mean you have to make a tax return.
I know French people who live near the Swiss border and who file their tax returns in a matter of minutes because all the information is pre-filled via their employer's income statement and their bank.
They are two different countries, and Switzerland is not a member of the EU.
When French bureaucracy is simpler and more efficient than your tax collection system, you have a problem.
Sometimes I think the most exceptional thing about the USA is exceptionalism.
Solutions to problems that are solved elsewhere are pushed back against, because "The USA is fundamentally different".
Other countries have states too. The UK even has a country with an entirely different legal system (Scots Law), but we still make our collection of income tax system simple.
A "complicated tax system" (if that is the root cause) is not something that is impossible to change. It is within the gift of the government(s) to change that.
The lack of appetite for change is the result of decades of lobbying for the status quo to continue.
We got pre-calculated returns as an alternative in the early 90's, by the time I got my first real job in the early 00's everyone used the pre-calculated one and just made changes as necessary. The first years I got my tax return in the mail and I think a few years I had to mail back a signed copy, but these days everything is digital and if you don't have to make any changes you don't have to do anything at all.
Back then you also had to physically deliver your tax deduction card to your employer so they could deduct tax correctly, but these days that is also digital and salary systems just fetches the current deduction card before running salary jobs every month.
What? I just googled, and found it is actually a real thing. Holy molly! Has Amazon become a federal system for distribution of money and goods? What next? coupons for burgers, Netflix credit?
It seems their business model is more existentially challenged by LLMs these days. I’m waiting for the regulations preventing AI being used for taxes and legal counsel
I agree, tax prep will probably be done by AI soon, for better or worse.
On the other hand, there's a broader business model here: lobbying to obfuscate mandatory government paperwork so that a 3rd party service is practically a requirement. It's not difficult to see AI companies expanding into that industry.
Taxes are actually not a bad problem for AI, because a lot of the final calculations can be easily verified/sanity checked. The AI won't be able to get away with any math errors, the issues you'll likely see are incorrect categorisation of income or suboptimal deductions. The substeps like categorisation shouldn't be too difficult to manually verify
this seems to fall into the category of Intuit offering AI (RAG/MCP + tuned base model) and not people directly going to chatgpt for half-baked advice (and still needing to fill out all the forms and perform hand calculations themselves)?
Why does the US have a tax prep industry in the first place?
In every other country in the world, taxes are handled by their respective financial authorities.
Why must every service and thing in the US must be a private profit making thing?
Land of the f(r)ee
Yip, consider how much money banks make by injecting themselves between you and the reserve bank.
Can’t you fill your taxes for free in the US if you know how?
That's why GP said "tax prep". Anyone can download and submit a 1040. That isn't the part that takes domain expertise.
I don’t know why assume that in every country in the world that is free. In my European country until 15 years ago or so you had to hire someone to do your taxes for you, and currently the free method only works for the most simple tax filing.
the UK seems to be going in this same bad direction now "As part of our journey to modernise and digitise our filing routes, all accounts must be filed using commercial software from 1 April 2027." https://changestoukcompanylaw.campaign.gov.uk/changes-to-acc...
you used to be able to do this yourself on the gov website for free
Tell me about it! The bottom tier subscription services are also subtly crippled to make filing MTD tax returns difficult. eg. Xero's lowest tier doesn't let you easily add cash payments (without jumping through hoops for each payment).
I never understood why the Revenue can't provide a set of simple online forms for tax returns like India does. Heck, India provided Excel sheets with VBA script for many years, that produced an XML which can be submitted as tax filing. Tax filing is now a 15-minute affair for a salary-only income in India.
The complexity is a feature not a bug. If you have more complexity, you have more opportunities for loopholes. Those loopholes are currently used by those wealthy enough to hire creative firms to help them get through them and minimize owed taxes
If there’s one outcome I really hope from AI automating work, it’s taking away the advantage the monied class has in this regard. Then perhaps there’s less purpose for the complexity
Maybe the AI will create a level playing field and make the tax prep / loophole industry collapse.
Or maybe the free models will start responding with
""" It looks like you're asking for help with tax preparation. I recommend our designated AI tax service [link to service that asks you to upgrade your plan or pay a one-time fee]. """
They are operating free models at a loss now, but at some point they are going to have to turn a profit. At that point tax prep becomes a revenue stream for AI as well.
Using AI to do your taxes seems like a quick way to get into a bunch of trouble.
Not if the IRS verifies using the same AI. Actually, it’s probably twice the trouble.
>The complexity is a feature not a bug. If you have more complexity, you have more opportunities for loopholes. Those loopholes are currently used by those wealthy enough to hire creative firms to help you get through them
Agreed that the complexity is a feature but it's not for the rich ( though the rich will take advantage of it, and why not? ) . It's mostly for the powers that be. If there were a 'flat' tax ( and one could argue what constitutes a flat tax) the rich will be more willing to pay that flat tax.
I'd say complexity support a very large govt, keeping several people employed including accountants, tax software companies etc. It serves the parasite class.
> If there were a 'flat' tax [...] the rich will be more willing to pay
That's just because moving from progressive-taxation to a flat-tax reduces how much they pay!
The "simplicity" of the math done by their usual accounting firm that does their taxes for them is irrelevant by comparison.
_________
To illustrate why the burden shifts, suppose the nation of Elbonia needs a constant $540 to operate, and it moves from a progressive tax to a flat tax.
It should be no surprise that most of the Elbonian nobles are "willing" to see that change happen. Meanwhile, the peasants that are already living paycheck-to-paycheck have to plan how to cut back on luxuries like keeping their teeth.Another issue is that super wealthy folks don't get their money from regular wages. They borrow money from banks using their assets (e.g., stocks) as collateral. They pay back the loan at relatively low rates. The borrowed money is not taxable income.
> That's just because moving from progressive-taxation to a flat-tax reduces how much they pay!
That's what everybody says but then you look at effective tax rates in real life and the highest ones are paid by people like doctors rather than billionaires because the complicated system is the thing that allows the billionaires to pay less.
Meanwhile you don't need a complicated marginal rate system to get a progressive effective rate curve. Just give everybody a tax credit in a fixed amount and then use the same rate for everyone. Here's your table when you do that:
90 peasants each earn $10 and are taxed 42.5% and receive a $2.25 credit -> $2 per peasant, effective rate 20% 10 nobles each earn $90 and are taxed 42.5% and receive a $2.25 credit -> $36 per noble, effective rate 40%.
These numbers, of course, assume that as in your example you need the average effective rate (by earnings) to be 30%. By comparison, for example, US federal receipts as a percent of GDP have been stable at ~17% of GDP since the end of WWII (and were dramatically lower before that). Your numbers would be more in line with what would happen if both federal and all state taxes (including e.g. property tax) were replaced with this system.
[delayed]
It's worth pointing out that the Treasury takes in tax revenues throughout the year. The sources of that income are:
50% Payroll Income Tax. 35% Social Security Taxes. 7% Business Taxes. 7% Excise Taxes.
70 years ago they were:
25% Payroll Income Tax. 25% Social Security Taxes. 25% Business Taxes. 25% Excise Taxes.
I think the priority is fixing this distribution to levels which were historically perceived as being more fair. The wealthy are one problem. The oversized corporations are the everlasting machine which drives them.
The tax brackets are not what make taxes complicated. Knowing how to categorize different types of income is what makes taxes complicated.
The flat tax would not make tax preparation any bit easier. They only thing it would do would be to eliminate progressive taxation. In other words, the rich would pay less. The poor would pay more.
This is incorrect: the wealthy don't use loop holes. They use incentives explicitly enumerated in the tax code.
What else is an incentive for, but that the government wants you to use it?
Hell, Google got pre-approval from the IRS for their Dutch Sandwich tax structure.
Most poor people don't read the tax code. They should.
Most poor people don't read*
They should.
Of course, this is not to say they always are stupid or illiterate, it's again usually just another form of exploitation, they don't have (or feel they don't) time to read it.
Which is arguably explicit exploitation/enslavement - the Walmart door greeter doesn't have a difficult job, however their role doesn't allow them to do anything that would benefit themselves. I wouldn't care if they were reading their phones or a book, but noo... can't have the peasants educating themselves.
And they aren't paid enough, so when they return home, they likely don't have any time after needing to perform meal prep, taking a second job, etc.
The USA is a third world country in many respects.
~ Kerry Packer, before House of Reps Select Committee on Print Media, November 1991.
( https://www.youtube.com/watch?v=e97kq2XflKE )
It's still largely maximising what can be pushed through unintended loopholes.
AI will increase the complexity even more
The UK has online forms for this, even for businesses, but is moving away from this as part of "Making Tax Digital" - i.e. they are axing paper forms to doing away with the online equivalents as well.
Then again, most people here who have salary only income do not have to fill in a tax return at all - only if they have certain types of income (self-employment, capital gains or investment income) above a threshold.
I've been doing Self Assessment for 25 years. In the first few years it was fill in a colourful paper form which won awards for clear English etc. Nowadays it is online with many details pre-filled in. At the end you can download a .pdf that looks exactly like the paper form or not bother.
It's so easy that one man creates an Excel 1040 every year. See https://sites.google.com/view/incometaxspreadsheet/home
They do provide the forms, you simply fill them out. I did that every year without consulting any specialist or extra services. Much easier than in Europe. It was a 20min affair.
The whole point of the article is to answer to that question.
> I never understood why the Revenue can't provide a set of simple online forms for tax returns like India does.
Did you read the article? The TL;DR summary is that the US government has proposed doing this in the past, but has been lobbied against it by companies that seek to profit from software to help prepare tax returns.
The tax system in the US is complicated, you've got different state taxes as well as the federal, for example if your kids go to a different state for school than you live, add that your partner might work in another state, maybe they have different relief taxes for disasters through the year. It might very well be a feature but it is complicated, and the more activities you have, maybe investments, a small business, multiple jobs. It becomes overwhelming for non accountants.
This american exceptionalism is such a meme. You aren't special.
The propaganda must be pretty special to have you so convinced though.
You are not special, other countries have complex tax systems too and have figured it out, but you just refuse to and make excuses
Sure, but what about the >95% of the population which doesn't fall under weird edge cases?
Why doesn't the US provide a free 10-minute online wizard for them, like plenty of other countries are already doing?
Even the complex cases fit into an overarching tool. Most people in the UK don't submit tax returns because they don't have any income beyond their salary. Even if you do, you then use the tool which asks you a series of questions like "do you have a student loan?" and "did you receive any dividend income?", then you have to fill in some next level detail if those are true. I'm sure there are people with weird tax arrangements that need to work outside of the wizard, but I'd wager it was less than 1 in 1000, and those people tend to have the money to pay for fancy accountants to do it for them.
You also only need to fill in a tax return if you have income (or capital gains) above a threshold. SO having some interest paid on a savings account etc or a small side business or selling an asset at a small profit above what you paid for it does not mean you have to make a tax return.
This is true for some European countries too. No tax filing is needed for salary only income. I don't remember when I filed my taxes last time.
Many other countries also have complicated taxes and are able to provide a better user example to non accountants. The US isn’t special.
I know French people who live near the Swiss border and who file their tax returns in a matter of minutes because all the information is pre-filled via their employer's income statement and their bank.
They are two different countries, and Switzerland is not a member of the EU.
When French bureaucracy is simpler and more efficient than your tax collection system, you have a problem.
Many other countries have figured this out since the early 2000s, the US could do it as well if they wanted to.
Sometimes I think the most exceptional thing about the USA is exceptionalism.
Solutions to problems that are solved elsewhere are pushed back against, because "The USA is fundamentally different".
Other countries have states too. The UK even has a country with an entirely different legal system (Scots Law), but we still make our collection of income tax system simple.
A "complicated tax system" (if that is the root cause) is not something that is impossible to change. It is within the gift of the government(s) to change that.
The lack of appetite for change is the result of decades of lobbying for the status quo to continue.
I half agree with you in that the UK makes the tax system administratively easy for most individual tax payers.
That said, i think the system as a while is far too complicated. The application is simplified, but the rules are far too complex.
We got pre-calculated returns as an alternative in the early 90's, by the time I got my first real job in the early 00's everyone used the pre-calculated one and just made changes as necessary. The first years I got my tax return in the mail and I think a few years I had to mail back a signed copy, but these days everything is digital and if you don't have to make any changes you don't have to do anything at all.
Back then you also had to physically deliver your tax deduction card to your employer so they could deduct tax correctly, but these days that is also digital and salary systems just fetches the current deduction card before running salary jobs every month.
Paying to file taxes, and then getting you tax refund as an Amazon gift card -- that's very American :)
What? I just googled, and found it is actually a real thing. Holy molly! Has Amazon become a federal system for distribution of money and goods? What next? coupons for burgers, Netflix credit?
I assume this is done by the company, not the IRS.
Boring dystopia.
It seems their business model is more existentially challenged by LLMs these days. I’m waiting for the regulations preventing AI being used for taxes and legal counsel
Edit: This is timely being on the homepage: https://news.ycombinator.com/item?id=45601230
I agree, tax prep will probably be done by AI soon, for better or worse.
On the other hand, there's a broader business model here: lobbying to obfuscate mandatory government paperwork so that a 3rd party service is practically a requirement. It's not difficult to see AI companies expanding into that industry.
There are many things I would trust an AI with, but my taxes are not one of them.
Certainly not to do your taxes, but they're useful for tax questions, as long as your verify the responses.
Taxes are actually not a bad problem for AI, because a lot of the final calculations can be easily verified/sanity checked. The AI won't be able to get away with any math errors, the issues you'll likely see are incorrect categorisation of income or suboptimal deductions. The substeps like categorisation shouldn't be too difficult to manually verify
Don't use AI for tasks where you don't have the qualifications to verify that the result is correct.
this seems to fall into the category of Intuit offering AI (RAG/MCP + tuned base model) and not people directly going to chatgpt for half-baked advice (and still needing to fill out all the forms and perform hand calculations themselves)?
(2019)
Some previous discussion:
2021 https://news.ycombinator.com/item?id=26060414
2019 https://news.ycombinator.com/item?id=21281411
And some others, macroexpanded.
TurboTax’s 20-Year Fight to Stop Americans from Filing Taxes for Free (2019) - https://news.ycombinator.com/item?id=34594832 - Jan 2023 (1 comment)
TurboTax Tricked You into Paying to File Your Taxes (2019) - https://news.ycombinator.com/item?id=26102695 - Feb 2021 (306 comments)
TurboTax’s 20-Year Fight to Stop Americans from Filing Taxes for Free (2019) - https://news.ycombinator.com/item?id=26060414 - Feb 2021 (199 comments)
FTC Is Investigating Intuit over TurboTax Practices - https://news.ycombinator.com/item?id=24409093 - Sept 2020 (194 comments)
IRS Reforms Free File Program, Drops Agreement Not to Compete with TurboTax - https://news.ycombinator.com/item?id=21923220 - Dec 2019 (448 comments)
TurboTax’s 20-Year Fight to Stop Americans from Filing Taxes for Free - https://news.ycombinator.com/item?id=21281411 - Oct 2019 (447 comments)
TurboTax to charge more lower-income customers - https://news.ycombinator.com/item?id=20461169 - July 2019 (81 comments)
TurboTax Uses a “Military Discount” to Trick Troops into Paying to File Taxes - https://news.ycombinator.com/item?id=19994118 - May 2019 (42 comments)
Listen to TurboTax Lie to Get Out of Refunding Overcharged Customers - https://news.ycombinator.com/item?id=19870242 - May 2019 (44 comments)
TurboTax and H&R Block Saw Free Tax Filing as a Threat - https://news.ycombinator.com/item?id=19810981 - May 2019 (143 comments)
Congress Is About to Ban the US Government from Offering Free Online Tax Filing - https://news.ycombinator.com/item?id=19613725 - April 2019 (696 comments)
TurboTax Hides Its Free File Page from Search Engines - https://news.ycombinator.com/item?id=19758126 - April 2019 (262 comments)
TurboTax Uses Dark Patterns to Trick You into Paying to File Your Taxes - https://news.ycombinator.com/item?id=19718284 - April 2019 (274 comments)
How the Maker of TurboTax Fought Free, Simple Tax Filing (2013) - https://news.ycombinator.com/item?id=19392673 - March 2019 (253 comments)
How the Maker of TurboTax Fought Free, Simple Tax Filing (2013) - https://news.ycombinator.com/item?id=13853150 - March 2017 (439 comments)
How the Maker of TurboTax Fought Free, Simple Tax Filing - https://news.ycombinator.com/item?id=5443203 - March 2013 (330 comments)
Jeez, 13 years of history.