As April 15 approaches, it is fashionable to complain about how complicated the tax system is. And it is. But it’s time to recognize that, by providing “one-stop shopping” for a wide range of public programs, the income tax simplifies citizens’ interaction with government.
Legislators have chosen to run many social programs through the tax code. Through exemptions, exclusions, preferential rates, deductions, and credits, they subsidize everything from childcare to retirement savings, and from healthcare to energy efficiency. We can access all these programs at the same time just by filing our annual income tax return.
Imagine an alternative world where people had to sign up separately for each federal subsidy. It would be a nightmare both for them and the government. They would have to directly apply to the Department of Housing and Urban Development for a mortgage interest subsidy, the Department of Treasury for a retirement saving subsidy, and the Department of Energy to obtain a financial benefit from installing energy-efficient appliances. And each department would likely have its own application and its own requirements for documentation.
Instead, information sharing and consolidation across government programs through the tax code simplifies life. The Free Application for Federal Student Aid (FAFSA) used to require students to collect their family’s tax records and manually enter the data into a separate form. It was so complicated that relatively few students, especially those from low-income families, completed the paperwork and received financial aid. In 2009, however, Congress and the Department of Education simplified the application by automatically transferring the required tax information onto the FAFSA from Treasury databases. This saved families time, reduced data-entry mistakes, and made the program more efficient and effective.
One may not like the existence of subsidies in the tax code. But they do make it far simpler for tax filers to claim them at a single time through one comprehensive form. And it is easier for the government to administer them. After all, if Congress is going to create the subsidies, it ought to do so in the simplest and most efficient way.
While all these deductions, exclusions, and the like make it more time consuming to fill out our tax forms, beleaguered taxpayers should be consoled by this: It could be worse!