April 15

April 15 April 15, 2004

Some thoughts on "tax day."

1. First things first: This is not "tax day." It's income tax day.

This is a minor point with major repercussions. Business reporters and politicians use "tax" and "income tax" interchangeably. Thus today is "tax day." Politicians who cut the income tax are "tax cutters."

This is partly a matter of convenience — you save two syllables by just saying "tax" when you mean "income tax." It's also a reflection of the economic status of most politicians and of big name reporters and their editors. They make enough money to be a part of the top 3/10 of American taxpayers for whom income taxes are a bigger share than payroll taxes, which take a much bigger bite out of the earnings of seven out of 10 of us.

For most of us, then, the most important "tax day" doesn't come on April 15 — it comes every two weeks.

Payroll taxes are regressive — a flat tax that applies only to the first $87,000 of wages. And it applies only to wages — not to income from dividends or interest. Income taxes are progressive (although less so than they used to be).

By using "tax" and "income tax" interchangeably, politicians and business reporters end up ignoring the actual tax burden facing most American households and they end up turning their tax-cutting attention primarily to the most progressive part of the code. Ronald Reagan signed into law the largest tax increase in American history, hiking payroll taxes to a new record-high level. Yet Reagan is remembered primarily as a tax-cutter because he cut income taxes.

2. Most American taxpayers (about 2/3) take the standard deduction on their income taxes. This is another fact you would never realize from reading the biz-page hype leading up to April 15.

This helps to explain why flat-tax zealots like Dick Armey and Steve Forbes met with so many blank stares when they spoke dreamily of some far-off day when most Americans could fill out a simple one-page tax return. Most of us already have a one-page return. In all likelihood, Forbes' chauffer fills out a one-page return.

3. I thought that I might break with tradition this year and actually itemize my return like the top third of taxpayers do. I had understood that health insurance premiums could be deductible.

Unfortunately, I'm told, this deduction can only be taken if you're buying your own health insurance because you're "self-employed." It doesn't apply to those buying it because they work for a miserly publishing giant that does not offer benefits to all of its full-time employees.

4. My paper today ran an irresponsibly lazy "tax day" piece by AP biz writer Mary Dalrymple. It has Dalrymple's byline, anyway, even though most of it was written by the antitax lobbying group National Taxpayers Union. The folks at NTU had to be mighty pleased to see so much of their press release reproduced so faithfully and uncritically.

The alleged news hook here is a new "study" by the union regarding the increased complexity of the tax code. Their basic point — increased complexity means more inefficiency, which is bad for the economy — is a no-brainer. To make this basic point more newsworthy, they provide "data" such as this:

The total estimated time to finish these common forms is 28 hours and 30 minutes.

It is not only frustrating, but economically counterproductive, said David Keating, senior counselor for the National Taxpayers Union and author of a new study on tax complexity.

"This is something that hobbles the nation's productivity because we have a lot of very talented people filling out paperwork," he said. "It's a real deadweight in our economy."

Even the simplest Form 1040EZ tax return takes an average of 3 hours and 43 minutes to complete.

Whaaaa?

Three hours and 43 minutes to complete the 1040EZ? This is, frankly, impossible.

The 1040EZ takes, at most, a half-hour to complete. I finished mine in less than 10 minutes without a calculator and without turning off the TV.

Seriously, nearly 4 hours? Here's what's involved in filling out the 1040EZ:

A) Two elementary arithmetic problems. (Subtract a 4-digit number from a 5-digit number. Calculate the difference between two other 4-digit numbers.)

B) Looking up the amount of taxes owed in the booklet — a task slightly less challenging than looking up the number of the pizza place in the phonebook.

That's it. If you did all the arithmetic on your fingers and toes it still wouldn't take 3 hours and 43 minutes.

David Keating of the National Taxpayers Union: You're over the line. You hereby forfeit your right to be taken seriously.


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17 responses to “April 15”

  1. The same piece ran in our local paper too (The Saratogian). Or at least those same data points were in the story. I remember reading them and thinking ‘whaaaa?’ myself. Yeah, I’m lazy, and I use Turbo Tax (but I’m in that 1/3 that itemizes — and TT does all the figurin’ fer me). I was shocked by both numbers. I think doing the long form (using the software) takes me less than two hours. The only thing I can think of is that they are factoring in time to accumulate the required documents.

  2. PRI’s “Marketplace” repeated the same time-to-prepare numbers this afternoon. As I was driving back to work after lunch and heard this, I thought: Even if you included the time it took me to download and print out the 1040EZ form and instructions (even throwing in the California 540-2EZ as well), the whole process could not have taken me more than an hour. Where could 3 hours and 43 minutes have come from? A test, perhaps, conducted by the National Taxpayers Union, where a random taker is given a 1040EZ, a W2, and some receipts, and is told to figure it out? The difference being that I know to a pretty good degree of certainty how much money I made last year, and which of my accounts have generated taxable interest. If some stranger handed me his forms, it would probably take me a couple of hours to figure out the financial history of the last year of his life, too. But such a thing would seem to be a better way of springing a pop quiz on aspiring tax accountants than evaluating how long it takes the average person to fill out his or her own tax forms.

  3. Just a comment on the 1040EZ: I managed to screw it up, not just once, but twice. Two different errors, two times in a row. And I was a law school student at the time. Granted this was back in the 1980s, and, granted, my math skills have never been of the best, there may have been something about the form that encouraged an otherwise reasonably well-educated person to screw up, but I’m not sure what it is.
    Using the current 1040EZ telefile system takes much of the mystery out of the math.

  4. Could they possibly be factoring in the time it takes the payroll department to generate the W2s, etc, as well as the time it takes an individual taxpayer to fill out the EZ form?
    It still seems ridiculously over the top even with that generous interpretation, though.
    (I used tax software this year and it took me nearly eight hours–but this was the weirdest tax year I’ve had since I bought my house; more typically, it takes two to three hours. And I do get huffy thinking about how much trouble it all is… so thank you for reminding me that I’m *lucky* to be in the class of people for whom tax return preparation is a pain in the ass.)

  5. seriously. and the 1040A is just as easy, too. the hardest part for me was hunting for my W2.
    i say the hype about completion times is a total construct to make sure that two thirds continues to take the standardized deduction.

  6. Well, I’m pushing toward the 28 hours for a 1040A, on an income of $25K. I suspect I’m a little unusual:
    I’m a grad student, and it seems that my summer internship last year paid me in the wrong state. So I have to file Federal, in the Internship State , in the Mistake State (to ask for the money back ), and in my Grad School State. Of course, The Very Large Corporation still hasn’t gotten around to issuing a W2-Corrected.
    So I had to file Federal, then file for extensions in Internship (and send them a check), file in the Mistake State, and file in Grad School State.
    This is made worse by the fact that the various “free for poor folks!” web services are free federal–and $24.95 per state. I really, really can’t afford $75 for random tax overhead.
    Danyel

  7. hey your employer could just pay you less and include full benefits, but that would be like socialized medicine…..oh you might like that.

  8. Oh, come on, GC in CA, I know it took you longer than usual to do your taxes this year. I had to listen to you complain about how CA didn’t put all of the instructions and schedules you needed in a single PDF so you had to download everything from the site to make sure you didn’t miss a step.
    (Sorry, couldn’t resist. Shmoopie.)
    I webfiled a 1040A and it did take me a couple of hours, but most of that time was spent clicking “No” … “No” … “Does Not Apply To Me.” Tedious, but worth it for the nice refund check I got. (Thank you, President Clinton, for the Lifetime Learning Credit — I got back most of what I paid in because of it.)

  9. Maybe they included the time spent looking for the W-2 Forms that got stashed in the right-hand drawer…no maybe it was the top of the filing cabinet….or is it with the pile of receipts over in the corner…

  10. Sounds to me like this is a number based on a random survey. It wouldn’t surprise me to find that people percieve their taxes as taking three hours to do (even though in actuality, they are counting the time spent hunting for their W-2, downloading the forms, calling their spouse to double-check that they should use the EZ form, and then procrastinating for two hours while silently complaining about having to take all this time to pay taxes.)

  11. I do my taxes with paper and pencil, itemizing. It took me about 4 hours to do both federal and state returns.

  12. My only guess is that there’s one guy out there who’s STILL working on his 1040EZ from 1991, and he’s driving up the average something FIERCE.

  13. The 3:43 estimate comes from the IRS itself. In the instructions for 1040EZ it says “The time needed to complete and file Form 1040EZ will vary depending on individual circumstances. The estimated average time is: Recordkeeping, 4 min.; Learning about the law or the form, 1 hr., 40 min.; Preparing the form, 1 hr., 39 min.; and Copying, assembling, and sending the form to the IRS, 20 min. The total is 3 hr., 43 min.” They have this for all forms as part of the “Paper Work Reduction Act Notice.” I have no idea where they come up with these estimates, but they do seem off by quite a bit.

  14. I think someone who was filing taxes for the first time might really need all that time to read the instructions. I remember my first year I would go through the booklet and take every one of the little quizzes to see if I had to fill out schedule JX-48F or whatever. I checked out every one of them for fear I’d miss one I needed.
    After a couple years, sure, you can just LOOK at the title “JX-48F: Amortization of Tax-Deductible Sheltered Capital Gains From Real Offshore Property Purchased in Leap Years” and know you don’t have to go near it. But the first time, I can see it taking longer.

  15. I have no idea where they come up with these estimates, but they do seem off by quite a bit.
    My guess is the IRS deliberately provides estimates that they know are too high. Minimizes the number of people who complain that their taxes took them longer to do than the IRS said it would.

  16. Thoughts on income tax

    Although five days old, Fred Clark, aka the Slacktivist, posted some interesting thoughts. Here’s the PowerPoint summary: