It takes us somewhere in the vicinity of two billion hours and $30 billion to prepare our individual tax forms.
But it does not have to be that way.
Pre-Filled Tax Forms
Other countries pre-fill.
Our story begins in Denmark in 1988 when they asked people to add to a partially completed tax document. By 1998, taxpayers received an entirely pre-filled online form. From there, it was easy to take a final simple step where people just had to give their approval. By 2011, 80 percent of the population accepted their pre-filled tax return.
We can go to 45 countries that at least partially pre-fill. They include Sweden, Chile, Finland, Norway. When Jeb Bush (at a 2015 Florida economic summit) said it takes Estonians just 5 minutes to do their taxes, he was wrong. It’s 1 minute. Described by Politifact, their equivalent of the IRS collects financial data electronically from third parties. As a result, 40 percent of Estonia’s taxpayers needed just one click (2015).
The following estimates are 18 years old but I wonder if they are still valid:
Although increased compliance and reduced administrative costs could be massive benefits, The Atlantic and Vox suggest why we don’t change. A pivot would initially involve millions of people doing taxes differently. Some say we would miss our tax breaks. Underfunded, the IRS would have the extra expense. And finally, we have the tax preparers that want to retain their customers.
Our Bottom Line: Defaults
In Nudge (a wonderful book), Richard Thaler and Cass Sunstein explained why we take the default. The path of least resistance, defaults require us to do almost nothing. And then, if they come with “some implicit or explicit suggestion that [they] represent the normal or even the recommended course of action,” defaulting becomes even more attractive.
With pre-filled tax returns satisfying every Nudge default criteria, you wonder why we don’t.
My sources and more: Long ago, I enjoyed On the Media’s It’s Tax Time” podcast. Now, happily, we have other articles that complete the picture. Vox had the perfect overview while these papers, here and here, had more analytic insight as did The Atlantic. But if you read just one paper, do look at Austan Goolsbee’s “The Simple Return.” (Please note that several of today’s sentences were in a past econlife post.)