Ignorance is expensive

This is the 12th in a series of classic columns (edited for space) by Joel Belz. Joel wrote this Feb. 24, 2007, column, during tax season.

Will you forgive me for a bit of smugness if I tell you that I filed all my income tax returns last week, and am hoping to get both my federal and my state refunds even before you read this page?

That possibility is enhanced, of course, because we’ve automated so many formerly tedious processes in life. I use TurboTax, just one of a half-dozen excellent tax-­preparing software packages you can employ for less than $50 a year. It’s up-to-date, comprehensive, accurate, and easy.

But I’m not at all sure it’s good for society.

Paying taxes, by definition, should be hard. Maybe it should even be painful.

As it is, most of us really have no idea what specific obligations Washington, D.C., and most of our state capitals are laying on us. Ever since “withholding taxes” were instituted, we’ve been snookered into coughing up a more or less invisible burden. Chances are slim to none that you could right now tell, even if your life depended on it, how much of your last paycheck went for income tax. Most people, I’ve discovered, are also ignorant of their own “marginal tax rate”—the percentage you pay in taxes on the very last dollar you reported as income last year. What you don’t know can very definitely hurt you.

Automating the tax-preparation process simply adds to that ignorance. True enough, TurboTax (and I’m sure the other programs as well) keeps a little window open in the upper corner of my laptop screen that tells me in precise and current terms exactly what my tax obligation is along the way. And then as soon as I start entering interest, contributions, and other deductions, that same window magically begins to tell me how my refund is growing.

The process informs me—but it never really teaches me. It makes me feel as if I am in control, but of course I don’t really have a clue what’s going on.

Not so long ago, filing taxes was hard. I’ve noted here before that modestly assuming 100 million typical taxpayers devoting just 10 hours each to completing their federal returns, that’s the equivalent of having the U.S. government assign 500,000 people full time for the coming year to do nothing but file tax returns. And even that has never been enough. Millions of those taxpayers give up every year and head for professional help. And after all that, the IRS employs tens of thousands more people to check the accuracy of what gets filed and to chase down those who make mistakes, innocent and otherwise.

But I’m dead wrong to argue that just because it always used to be hard we somehow understood what we were doing. We live now—and have for a long time—with a tax system that virtually invites us to run afoul of laws so intricate nobody can be sure he or she is in compliance. Recent news reports told again of five different IRS agents coming up with five different ­“correct” returns for the same set of data.

The simplest of all tax returns, of course, is the postcard form that asks very directly: “How much did you make last year?” The only other instruction is: “Send it in.”

On the other hand, I continue to hear almost weekly from WORLD readers who insist that the existing federal tax system is altogether unconstitutional, and that serious citizens should refuse to pay any such taxes.

Somewhere in between must be a system that is just demanding enough, just difficult enough, and just transparent and obvious enough to permit honest and reasonably alert taxpayers to complete their obligations every year without fear of being hauled off to tax court.

In the meantime, may I recommend one of the software packages that have made my returns such a breeze? I don’t pretend to understand all the intricacies of the calculations—but I do get to spend the next two months thinking about happier things.