This year's tax deadline provoked a flurry of commentary about the impact of consumer technology on the tax system. A noteworthy thread came from some taxpayers who (like myself) pay (and dislike) the alternative minimum tax (AMT) as part of their federal income tax. One of them complained that the AMT was TurboTax's fault.
TurboTax is one of the popular personal computer programs that help taxpayers with the awful chore of filling out their forms. It is a godsend, and once a taxpayer uses it, the likelihood of going back to a pencil and paper on the kitchen table slips to nil. The program does all the math for you, it updates everything as you add new data about your income and expenses, and it remembers you from year to year. That last feature is particularly neat. Not only do you not have to re-key your address, dependents' names and i.d. numbers, and favorite charities every year, but you can also hold up your tax results from the last five years side by side to see how you're doing.
So how is TurboTax responsible for the perpetuation of the AMT?
Well, according to the critics, taxpayers who use this program (or a similar program, or who use professional return preparers who essentially charge you to run the same programs) may not even know that they're paying the AMT. And they don't suffer from the complexity of the AMT (which would be a real headache to figure by hand) because the program does all the thinking for them. Thus, there is far less likely to be a groundswell of outrage over the AMT than there would be if the taxpayers had to compute it manually.
They're certainly right about the outrage factor. Without TurboTax or something similar, most taxpayers wouldn't even realize they owe the AMT. They'd send in their tax returns, and get a rude surprise several weeks or months later, when they got a bill from the IRS for hundreds or even thousands of dollars. That would send them storming over to the phone to call their representatives in Congress, all right. In contrast, with TurboTax flagging the issue in a timely way (as it did for me), there's still indignation, but without the elements of shock and awe, and without the hassle factor accompanying manual calculations.
In that sense, the AMT really is being helped along by TurboTax. The complexification of the tax system lumbers on, and it's unlikely to get fixed, because, folks, Congress knows we either have TurboTax or are going to H. & R. Block. Congress knows that as long as the people at Intuit who are writing the TurboTax program can figure out the tax laws, Congress doesn't have to write a tax code that anyone else can fully understand.
This phenomenon is not entirely new. For example, a couple of decades back, the tax laws got much more complicated when Congress discovered the sheer beauty of cheap, handheld financial calculators, such as the classic Hewlett-Packard 12C. Once the tax staffers on Capitol Hill saw how easy it was to figure out compound interest, many important tax calculations suddenly required that such calculations be made. As one tax pro put it to me over the water cooler back in my practicing lawyer days, "The 12C created the O.I.D. rules."
And it's no news that the computer is affecting the way the world works, is it? Let's face it, in the end, Bill Gates killed the music industry. For most consumers, the purchase of music at a retail store appears to have become a quaint relic of a bygone era, due entirely to the power of the home computer. In that sense, it's Gates as much as Intuit who's responsible for the persistence of the AMT.
A few years back, a bright student and I were conversing about this very topic when she made an intriguing suggestion. Instead of Congress writing tax laws in a legal form of English that mere-mortal accountants and attorneys can understand, and then having Intuit put it into computer code, why not have Congress simply pass the computer code itself? In other words, rather than say, "Your tax is your income minus these deductions, multiplied by these tables -- now go buy a private computer program to try to get it right," Congress could simply say, "Your tax is what this computer language says you owe after plugging in the income and expense information that it calls for."
I laughed when she said that. But then again, I laughed years ago at the Charlie Chaplin commercials that promised a computer in every house some day.
In any event, there are plenty of reasons not to like the AMT. It takes away deductions for things like supporting dependent children, and paying income taxes to the state and local governments. If Congress really believes that those expenses decrease one's ability to pay, and therefore shouldn't go into the federal tax base, it ought to be sincere enough not to "sneak-tax" them through the back door of the AMT.
With TurboTax in the picture, the upcoming AMT battles will have to be fought out on those terms. "It's easy to overlook" and "I couldn't figure it out" are not going to be valid arguments.