Ryan Cooper over in The Atlantic has become obsessed with the Faroe Islands tax collection system, called TAKS:
The Faroes haven’t just set up a centralized system that automatically collects tax revenue and disburses welfare payments; they also continuously monitor all of your labor income and adjust your withholding as necessary if you lose a job or get a new one. Ordinary businesses and employees never have to even think about TAKS—no tax return is required.
What’s more, the system almost automatically produces the best possible economic statistics—virtually an identical and contemporaneous picture of the whole economy, down to the last krone—instead of relying on the kinds of laborious and inaccurate surveys used in the U.S. That automation, in turn, has allowed TAKS to cut its budget and staffing while increasing audits on large, rich companies. As an American, I was pretty humiliated to see our clock getting not just cleaned but polished to a mirror finish by a tiny archipelago of just 54,000 people.
Now there are a ton of reasons why this is probably not a good idea, particularly if you like small government and the right to privacy.
But that’s not the most important part of this story. This is:
Vested interests and ideology are the real obstacles to fixing the IRS. Numerous attempts to streamline the American tax system have run into a wall of money from the tax-prep industry. As Justin Elliott and Paul Kiel reported for ProPublica in 2019, for more than two decades, these companies, led by Intuit and H&R Block, have aggressively mobilized to stave off attempts to create a government system for free tax filing online. They swatted down an attempt from the George W. Bush administration to move in this direction and also blocked the Obama administration from pushing the idea.
If you ever wanted to know why we can’t have such a system here in the U.S., look to tax prep companies and tax prep lobbyists. The tax preparation business is worth, get this, $11.7 billion a year. The adoption of a government-level tax system would completely destroy this entire business.
Now lest you think that the idea of avoiding a massive, overreaching financial surveillance system is the only problem to consider here, remember this: it is the same $11.7 billion a year tax preparation industry that is working to avoid meaningful tax reform such as the implementation of a flat income tax or the replacement of a flat tax with a consumption tax, as has been proposed by many conservatives. Even the elimination of the alternative minimum tax gets hung up by the powerful interest groups supporting the tax preparation lobby.
Ironically, it is this refusal to fix the tax system that made Donald Trump’s tax returns such an issue. Either the implementation of a TAKS-style system OR a flat tax would have eliminated a lot of the chicanery that Trump was trying to hide by not releasing his tax returns.1
Tax preparers have a vested interest in maintaining the status quo, obvious from the nearly $12 billion a year generated in tax preparation. So it would hurt these companies’ bottom line if this:
According to the Public Law 117-154(06/23/2022), the U.S. Tax Code is 6,871 pages. When you include the federal tax regulations and the official tax guidance, the number of pages raises to approximately 75,000. This will take an average reader about 14 weeks to finish.
were to change. So imagine how much that would change if Steve Forbes’ “file your taxes on a postcard” system ever came to be.
Nothing is likely to happen on tax reform in the next two years with a divided Congress and a Presidential Election looming. But it’s past time that some enterprising members of Congress finally decide to take the tax prep industry head-on and make positive change for the people of this country.
The Democrats’ assistance in releasing it, however, is dumb.
If this author really thinks that tax preparers are the principal “vested interests” fighting tax reform in this country and the main obstacle to streamlining the tax code he needs to do some more research. Sure they present a problem. But Congress is wedded to the internal revenue code and it’s a match made in hell.