We’ve just passed the tax deadline and reflecting on it I was vexed
again by this question: why do we still have these tables of brackets
that determine how much income tax we’re supposed to pay?
understand there was a time, many decades ago, that the government
wanted to keep things simple so each person could easily determine the
tax rate that would apply. And I know that the continued use of tax
brackets is not the biggest problem around. However, tax brackets are
just another symptom of government’s failure to see the widespread
deployment of technology in the public and its failure to use basic
technology for simple improvements that are appropriate in this century.
cause some problems. Politicians who advocate a single flat tax rate
often start with the argument that their approach would be so simple
people could just send in a postcard. Putting aside the merits or
demerits of a flat tax, for the moment, there is something retro about
telling people to use a postcard in 2016.
From 2000 to 2015, postcard usage dropped by more than two thirds, an
even greater drop than in first class envelope mail. The Washington
Post even had a story last year with a headline that asked “Are postcards obsolete?”
Where would we even find these postcards? Would the IRS mail them to us? 🙂
who argue for flat taxes or lower taxes in the higher brackets
implicitly say that people will work less if it means an obvious jump in
tax rates by shifting into a higher bracket. There are also those who
advise people how to avoid this problem, as did a Forbes magazine article
last month which started out saying that
“the key tax challenge facing
retirees: being helplessly catapulted into rising tax brackets [because
our] tax code is progressive.”
Indeed, with the current set of progressive tax rates, your percentage of tax goes up as your income goes up.
But we no longer have to assume we live a world limited to paper-based tables.
is nothing in today’s world that requires the use of brackets in a
progressive tax system. Indeed, a system based on a formula instead
would eliminate the negative impacts of bracket-avoiding behavior that
critics of progressive taxation point to.
There are a few possible
formulas that might work. The most complex would be a logarithmic or
exponential curve, which a computer can nevertheless easily compute. If
you want to make it even simpler, another formula would set the
percentage tax rate as a percentage of income. (Remember school math?
TaxRate = m * Income where m is some small fraction.)
the formula, computers can handle it. The IRS could make a formula
available on line or over the phone — just enter your taxable income and
it will tell you what you owe. It can be built into the calculator
function of cell phones. There are tens of thousands of coders who
could finish this app in an afternoon.
Of course, the IRS says that it now offers an app, but it doesn’t take advantage of the computing power of the mobile device nor help you figure out the amount you owe.
we’re at the effort to bring government into the modern technological
era, let’s also consider where those taxes go. Why do we still have
The budget reform of the 1920s was developed in a
world that did not have the ability to dynamically make calculations.
So every year, government officials make their best guess on the
condition of the economy, the demand from an unknown number of
potentially needy citizens and other factors that determine the ebb and
flow of public finances. Since the budget process is lengthy, they make
this guess well ahead of time so they could be trying to predict the
future more than 18 months ahead of time.
A rolling budget would
work better by automatically adjusting each month to the flow of revenue
and the demands on government programs — and all you need is a big
spreadsheet on a not-so-big computer. However, the budget makers would
have to decide what their priorities are. For example, for every
percentage of unemployment, we need to put aside $X billion dollars for
unemployment insurance payments. It would take work to do this for each
of the promises the government makes — although maybe not as much work
as trying to guess the future.
(Of course, the real obstacle to a
rolling budget model is that policy makers would be forced to make more
explicit their priorities.)
I could go on, but you get the idea.
Buying billions of dollars of technology products is not enough.
Government needs also to bring technology into its thinking and design.
© 2016 Norman Jacknis, All Rights
[Note: this is an update of my blog
post in 2012]