Filing Taxes: A Tale of Two Countries

In Sweden, filing taxes is a breeze for Jens Peter de Pedro. The government pre-fills his tax return, leaving him to merely sign and return it. In the US, however, his American wife grapples with the complexities of the tax system for days, a situation he describes as a "pain point."

Why the US Tax Code is so Complicated

The US tax code is a labyrinth of 4 million words, a product of decades of incremental changes that have piled up. Unlike other countries, the US has not undertaken a comprehensive overhaul of its tax system, leading to its current level of complexity.

International Comparisons

In the UK, taxes are deducted from paychecks and reconciliation is automated. There is no need for individuals to file a tax return. This system allows for more precise withholding than in the US, where complexities such as the married filing jointly status and numerous credits and deductions make accurate withholding difficult.

Social Policy and Tax Deductions

The US tax code serves as a delivery mechanism for social welfare programs, such as healthcare and retirement savings. This reliance on tax deductions and credits adds to the complexity of the system.

Special Interest Groups and Tax Breaks

Tax breaks aimed at encouraging specific behaviors further complicate the tax code. The mortgage interest deduction, saver's credit, and charitable deductions have become politically entrenched, making their removal difficult.

Freelance and Gig Work

Freelance and gig workers face challenges in simplifying their tax filing processes globally. In the US, they must manually track income and expenses, a burden that requires many to hire accountants.

Steps Towards Simplification

The US has taken some steps towards simplification, including doubling the standard deduction and reducing the number of itemized deductions. Additionally, the IRS's Direct File program allows taxpayers to submit returns electronically and automatically import W-2 data.

The Future of Tax Simplification

Further simplification could include pre-populated tax returns and automated tax calculations. However, these require legislative changes that mandate earlier reporting of income data by companies. While these goals may seem distant, the progress made with Direct File is a significant step in the right direction.