Tax Season

US Tax Form 1040It’s that time of year again, when almost 140 million people in the US have to waste many hours of their personal time collecting information from forms sent to them by employers, banks etc, then enter it all into another set of forms to be sent to the federal and state tax services. Oh, and all that information has already been sent to those very same authorities. Just so they can check your answers? Is this some kind of annual test?

Wasted Time
The IRS estimates that on average across all people filing any type of federal return, individuals will spend 17.3 hours “preparing” these forms. The IRS reported (pdf) that in 2007 there were almost 139 million individual tax returns filed. So, a quick calculation suggests that every year in the US, 274,509 person-years are wasted on collating and transcribing information that the recipient (the IRS) already had. And that doesn’t include the burden from the state tax filings.

Wasted Money
In addition to the ridiculous amount of time wasted on this activity, the IRS also estimates that it will cost individuals on average $225 to prepare these returns; that’s $31 billion every year (and, again, doesn’t take into account state tax filing costs). That could be spent on things that were a lot more beneficial than collating and transcribing information from one set of forms to another.

Wasted Resources
It doesn’t end with wasted time and money either. Every year, employers, banks and other companies mail out those tax details to all their employees/customers. Some now offer electronic delivery at least, but I wonder how many of those end up being printed at home, either for reference while preparing taxes, for providing to an accountant or just for records?

Estimates online range from 9,000 to 15,000 sheets of paper per tree (obviously, the type & size of the tree plays a big part in this!). Let’s assume the 15,000 sheets per tree number for the sake of this post. That means, assuming each person filing a return received at least 5 of these forms (probably lower than reality based on my experience), 46,000 trees were destroyed to print these forms (and that doesn’t include the envelopes used to mail them – probably close to as much again).

Then there are the tax forms themselves. The IRS reported (in that same data book PDF) that about 79 million of the 139 million returns were filed electronically (a great achievement, by the way). That still leaves 60 million that were mailed in, on paper, though. My federal return from last year was 13 pages. For the sake of round numbers though, let’s say that the average person mailing in a return is 10 pages. That means another 70,000 trees were cut down to send the information to the IRS a second time.

Every year, that means over 100,000 trees are being destroyed every year just to pass this information around multiple times. And that doesn’t include the rest of the carbon footprint of this process (converting trees to paper, the resources used in printing, and the delivery of the forms).

A Better Idea
I don’t expect the US to do the smartest thing and switch to a taxed at source model, where companies who pay people are responsible for deducting the correct amount of tax before sending out the money, any time soon. I just don’t believe it is in the American psyche. Especially not when I hear so many people who are ecstatic to receive a refund from the IRS! They don’t seem to realise that all those refunds mean is that they gave the IRS an interest free loan for the year.

There is another solution though that would make much more sense than the current scheme: just bill me!

Yes, that’s right, the IRS (and the state tax authorities too) have all the information that they need to be able to calculate how much tax I owe, or how much they owe me. They have the resources to process that data, and it is all keyed off of a single identifier. So, why can’t they just send me a statement, and either a bill for what I owe or my refund? That would reduce the time most people spend on taxes to just minutes (the time required to scan the statement, and pay the bill).

The paper waste is also reduced dramatically. Let’s assume an average of 2 pages, printed double sided, per person billed, and 139 million bills mailed out. That’s under 10,000 trees now. Add electronic statements as an option, and no-fee bill pay options, and you also reduce the paper wasted by the process even further – assuming the same proportion of people who e-file their taxes, it would drop to below 5,000 trees per year – a reduction of over 95%.

Tax Reform
How about it President Obama? Democrats? If you want to make a meaningful difference to the tax system in the US, how about reforming the collection mechanism rather than individual taxes? It makes sense from a fiscal perspective; it makes sense from an enforcement perspective (less avoidance); and it makes sense from an environmental perspective. What’s not to like here?

2 thoughts on “Tax Season

  1. But then what would Intui, H&R Block and all those tax people do then? I can see it now, “Your 1040 Form, Sponsored by HR block”.

    Unfortunately your solution only works if people are willing to let the government know about their every financial transaction at the time it happens. So it seems the whole “filling out your taxes” thing is driven by a minority’s desire to be given the choice to be able to cheat on their taxes, I think its called freedom…

  2. Pingback: Tweets that mention » Blog Archive » Tax Season --

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