April 15 – the day countless Americans file their taxes by either clicking “send,” or dropping a bulky envelope in the mail. And, after breathing a collective sigh of relief, we tend to put the whole process out of mind until next year.
An understandable reaction, to be sure, but also a wasted opportunity. While we all agree that paying taxes is a chore, this deadline is also a good time for taxpayers, government and the industry alike to take stock of the situation and assess how we can make the process easier, faster, better, less costly and safer.
Before letting this tax time moment pass, let’s grasp the benefits and the opportunities it offers.
Empowering through participation. No one looks forward to paying taxes. We spend too many hours, and too many dollars, trying to navigate Byzantine rules and decipher arcane definitions. The country needs a clearer, simpler tax code while promoting the incentives that encourage sound financial decisions.
Yet at the same time, the annual tax filing ritual has tremendous potential benefits that are often discounted. On the one hand, direct citizen engagement in the tax compliance process is more than just an obligation – it is participation in our government and in the civic life of our country – as is the exercise of the right to vote.
But tax time is more than an obligation. It is also an empowering opportunity for all Americans to look in the fiscal mirror and to take stock of, and ultimately improve, their personal and family financial lives. In the same way doctors encourage patients to have an annual checkup, regardless of their health, preparing our taxes is our own financial checkup – a way to walk away more informed and empowered to take positive actions to ensure our own and our families’ financial wellness.It’s a time to ask the tough questions that can make or break our budget, or change the course of our lives. Are there job training or educational opportunities that can help grow my career and income? Am I contributing all I can and should for retirement? Should I open a 529 education savings account for my children?
Indeed, savings at tax time – even setting aside a small portion of our refund – could do far more than change the trajectory of our long-term financial future as individuals. If done widely and wisely across the country, it could measurably improve the national savings rate and lift the economy. Although reviewing the previous year’s spending and savings can be burdensome, placing this power into the hands of the people through voluntary compliance guarantees a status check and provides the opportunity for each of us to take charge of our financial condition.
As the National Taxpayer Advocate observed some years ago: “… (F)or many individuals, it is the only time that they ever really sit down and look at what happened to them financially over the last year … I wouldn’t want to lose that … (F)or the broader health of the country – the financial health of the country – that is an important ritual.”
Pursuing simplification. The ritual, however important, is unnecessarily difficult. The need for tax simplification reform is never more clear than the moment the annual tax prep and filing ordeal concludes. Moreover, tax simplification would be one of the most important avenues to fighting fraud in the tax system. Complexity makes the tax system susceptible to fraudulent schemes and strategies, which simplification reform would directly combat.
Continuing the fight against fraud. This tax season has seen an unprecedented increase in tax cyber fraud. In particular, legislators, regulators and the private sector must continue the efforts they have begun to thwart sophisticated criminals who rob us of our identities and our dollars. Toward that end, the Internal Revenue Service has convened a Security Summit, bringing together the public and private sectors in collaboration to strategize the ways that more can be done to defeat this common enemy of the tax system. We strongly support this public-private partnership and are committed to its success.
Some suggest that the way to fight fraud is to actually make tax compliance more difficult, more complex and more costly. While that can perhaps be a business model, we believe that complexity is actually the enemy of the tax system and the taxpayer, and must be driven out through thoughtful simplification reform. It is important to develop a consensus around those principles in the public interest.
Now is the appropriate time for an earnest discussion about ways to streamline, simplify and improve the tax code. As part of this, we should also reflect on the good that our American tax system has to offer, and the citizen empowerment it embodies. If tax time is a teachable moment for financial literacy, leveraging that for individual and national economic benefit should be part of the policy agenda as we turn to the upcoming debate on tax reform.