The idea here is to shift the work to more streamlined systems already ran by businesses instead of relying on individual citizens to figure this all out. Citizens are not equipped with the time and money to deal with these abuses. Large private businesses who are already optimizing these expenses might keep things in check.
It's not a unique idea. In fact, I first heard it from IRS employees themselves.
It's attacking the wrong problems, and will have the same set of problems if it succeeds.
The actual root problem here is Grover Norquist + friends (comprising a large part of the republican party), who are opposed to all taxes, under basically all circumstances. Norquist is on record saying that it's GOOD that taxes are overly complicated, because it makes people dislike them more, and trust government less. There's an obvious marriage of convenience between the anti-taxxers and TurboTax, which is why TurboTax is able to hold the whole American tax infrastructure in stasis with seemingly miniscule amounts of contributions.
Remember, loads of other countries do this easily. Income is easy to track on the government side: they have all of the employment information, and can fill in the blanks easily. Tax day should really just be a chance for you to double check the calculation. It's a political problem, not a technical problem.
(Also, what the others have said about regressive taxes is 100% correct.)
There is no reason for pushing tax accounting into businesses to be better than for it to be on the citizens.
It does not make it a better tax, it does not make necesarily make it cheaper to manage, and it has the gravest of dangers of misaligning the incentives between the net tax payer and the net tax consumer.
Here is a simple example. You buy 10 stocks from Robinhood for $50. You sell them for $75. You now have to pay taxes on this. The broker can just inform the government of this taxable event and thus automatically deduct the tax for you.
One argument in favor of filing taxes yourself is that you can transfer the stocks to a different broker. No single broker knows what you have been doing with your stocks. However, the government already exists as a central entity and it can simply receive a full record of all taxable events from all brokers.
Where do you see this misaligning the incentives between the net tax payer and the net tax consumer?
If anything, it would make cryptocurrency based credit cards viable as a means of payment because the taxation problem is no longer intractable for the individual tax payer.
You buy a bottle of wine at 10bucks with your income that pays 10%, meaning that it cost you 11 bucks. Know you know you paid taxes and got your fine bottle.
You switch it to the store. Now the store charges you 11 dollars for the bottle of wine. It looks like you paid no taxes, but you did. Now you dont know your tax rate, you dont see it, and they can be raised without your approval as it is hidden from you.
VAT taxes work like that and have reached sometimes 30%+.
Furthermore, it doesnt make taxes simpler, the business still has to do tax handling for you, which means you also pay that company accountant.
Could you please describe why is that a bad idea? Or point me to a good reading source? I’m learning different aspects of economics and am genuinely interested to understand the downsides of taxing consumption as opposed to earnings. Now that I think about it, in India we are taxed on both ends.
Sales tax is regressive (lowest earners pay the most as % of their income, highest earners pay the least as % of their income) whereas income tax is [usually] progressive (lowest earners pay the least, highest earners pay the most)
Which is to say, that's a terribly obtuse way to deal with the problem, and does nothing to keep this kind of abuse from surfacing in other domains.