Filing Taxes: A Tale of Two Countries
Filing taxes can be a vastly different experience depending on your country of residence. For Jens Peter de Pedro, a Swedish citizen living in the United States, the contrast is striking.
In Sweden, de Pedro receives a pre-filled tax return from the government. He can submit it effortlessly through mail, app, phone, or even text message. In the US, on the other hand, his American wife disappears for days to navigate the complex tax process, a period he describes as a "pain point."
The US tax code's staggering complexity, with over 4 million words, contributes to the frustration. A fifth of eligible Americans fail to claim a valuable tax credit due to its intricacies. According to Alex Muresianu of the Tax Foundation, the system's design is haphazard, a product of numerous piecemeal changes over decades.
Other countries have streamlined taxes for salaried employees. In the UK, Alex Kirkley's employer handles all tax deductions, eliminating the need for a separate return. The system aims for precise withholding, facilitated by the country's single tax status for individuals, regardless of marital status.
The US tax code, in contrast, includes numerous credits and deductions to implement social policies and assistance programs. While this may extend benefits to taxpayers, especially low-income individuals, it adds to the complexity.
One area where simplification has proven elusive is freelance or gig work. In Sweden, de Pedro relied on an accountant to gather receipts and invoices for tax determination. Similarly, in the UK, Kirkley employs an accountant for his freelance earnings.
Simplifying the US tax code would require legislative changes and a willingness to relinquish the benefits associated with its complexity. The recent Tax Cuts and Jobs Act (TCJA) made some strides by doubling the standard deduction and limiting itemized deductions.
The IRS's Direct File program, which allows taxpayers to submit returns directly with the IRS, is a step towards simplification. However, it falls short of the Swedish model that provides pre-filled returns.
Legislating companies to provide the IRS with 1099 forms earlier could enable the IRS to calculate tax liabilities, further simplifying the process. Currently, the US remains at the initial stage of simplification, but the first step marks progress compared to the past.