Helen Paxton, Director of Communications
Rutgers Faculty of Management
201/648-5177 fax 648-1006
Email: [email protected]
Filing Income Taxes Biennially Would Have Great Advantages
Years ago the Port Authority of New York and New Jersey
figured out it could improve efficiency by collecting tolls twice as large
half as often. The money it gets is the same, but the efficiency, in both
traffic flow and operation expense, has been much better ever since.
Could the IRS learn from the PA? Rutgers' Jay Soled, a tax
lawyer and accountant, absolutely thinks so. In a recent article he
proposes that almost everybody would be better off if the nation went to
a two-year tax cycle.
The one-year period is, after all, only an artificial construct. It
got started, ultimately, when the ancient Egyptians and Babylonians
calculated the length of time it takes the earth to make a full rotation
around the sun. From there, the jump to doing things annually seemed
totally normal.
And for a long time it made sense, because the government
needed to collect money each year to pay its bills. But that was back
before withholding and estimating. Now that the government takes its
share as the year goes along, the revenue it gets comes in in a
constant stream. In fact the government now typically refunds more
money every spring than it collects! There's thus no longer any reason
for the great reckoning to take place annually. And there are some
compelling reasons why it shouldn't.
One is money. Estimates are that taxpayers pay over two
billion dollars a year for professional assistance in preparing their tax
returns. Businesses' costs are anybody's guess, but they're certainly
higher than two billion. And the government itself? Printing and
mailing several hundred million blank forms, staffing a toll-free
information line with professionals, advertising in various media about
the need to file returns on time, and processing the returns
(116,147,596 individual ones, plus a few million more from businesses)
-- these things cost the government well over five billion dollars each
year.
The figures for the time required are almost as daunting.
Individuals report devoting an astounding 27 hours each year to tax
preparation, and businesses, according to the best estimates, devote a
staggering 3.6 billion hours to all tax-related matters, a huge chunk of
them at the annual filing time.
From the standpoint of all three groups -- individuals,
businesses, and the government -- if this task could be done half as
often, the vast amounts of money and time saved could be reallocated
to higher and more productive uses.
To make such an idea work, several provisions would be
necessary. One is that it would have to apply to all taxpayers, not just
to certain ones. Another is that it would have to apply to both federal
and state taxes, and thus it would require approval by all fifty state
legislatures. And finally, it would require close monitoring on both the
taxpayers' and the government's side, to be sure that neither is gaining
an advantage.
In short, it's easy to think of superficial reasons against
extending the tax period to two years. But, Professor Soled insists, it
would work, and it would be worthwhile. His lengthy article goes into
detailed analysis of all the possible repercussions, including the
effects on income averaging, on congressional control of the economy,
and on equity. He concludes that the idea, even though it's a radical
one that challenges a lot of our basic assumptions, is irresistibly
sound.
Some professional tax preparers don't like it much. In fact,
one calls it, succinctly, "the single worst idea I have ever heard in my
entire life." But for the rest of us, it offers great benefits. Keep
listening, and you'll be hearing more about it.
JAY SOLED, Assistant Professor of Accounting, came to Rutgers in
1994. A graduate of the University of Michigan Law School, with a
master's degree in tax law from New York University, he has done tax
research that has led to publications in many academic and
professional journals.
visit our web site at:
www.rutgers.edu/accounting/raw/gsm
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