The Lesser Evil: Some Aspects of Income Tax Administration in the U. S. A. and the U. K.
| Author | A. H. Carter |
| Published date | 01 March 1962 |
| DOI | http://doi.org/10.1111/j.1467-9299.1962.tb01113.x |
| Date | 01 March 1962 |
The lesser
Evil:
Some Aspects
of
Income Tax
Administration in the
U.S.A.
and the
U.K.
A.H.CARTER,
B.SC.(ECON.)
This
is
a
shortened version
of
Mr.
Curter’s Haldune
Essay
commended by
the Adjudicators in the
1960
Competition. The original essay dealt at length with
the differences between the administration
of
income tax in the
U.K.
and the
U.S.A.
‘Higher productivity is the brightest hope for every man, woman and
child that the standard of living can be maintained and improved’. This
declaration by the British Productivity Council refers to industrial pro-
ductivity, and appears in the Foreword to Graham Hutton’s book
We
Too
Can Prosper- The Promise
of
Productivity.
‘Fifty years ago’, writes
Ah-.
Hutton, ‘an American industrial worker turned out roughly the same
amount in a day as his opposite number in Britain, Germany, or France,
and enjoyed broadly the same standard of living. Today, he turns out
from two to five times as much;
.
. .
yet there is no particularly American
secret about the recipe.
. .
.
If Americans can achieve these miracles
of production, it is by training, equipment and organization’.
Mr. Hutton deals also with a complex of interacting factors-size,
natural resources, the climate of opinion, etc.
-
which contribute to superior
American productivity. None the less, he boils down present-day American
prodigies
of
production to one phrase, ‘more capital, more used, and better
organized’.
It is perhaps surprising to find an occupation where the part played by
capital
is
necessarily slight, and yet where productivity in the
USA.
appears to be at least three times our own. In the year ended 30th June,
1958, the
U.S.
Internal Revenue Service, which is responsible for the
administration of all Federal taxes with the exception of the Customs,
collected $79,978,476,000 at
a
cost of $337,429,000, giving an average
cost of collection of 0.42 per cent. In the year ended 31st March, 1958,
the
U.K.
Inland Revenue collected iC;3,209,716,051, at a cost of&42,631,483
giving an average cost
of
collection of 1.33 per cent. In both countries
almost the entire cost
OF
administration consisted of wages and salaries.
With roughly the same number of staff, the
U.S.
Internal Revenue
Service collected eight times more tax, from a population three and a half
times larger. In both countries much the greater part
of
total costs relates
to
the administration of the income taxes. The question to be considered,
PUBLIC
ADMINISTRATION
{herefore, is why the
U.S.
income tax should cost
so
much less than
ours
to
run.
COMPARATIVE
COMPLEXITY
OF
TAX
LAWS
The disparity cannot be attributed to greater simplicity in
U.S.
tax
law.
There is, it is true, one outstanding instance where ease of administration
has been preferred to nice considerations of equity: the
US.
taxpayer
is
given the alternative of taking a ‘Standard Deduction’ of
10
per cent.
of
his total income (but not exceeding
a
maximum
of
$1,000)
in respect of a
large class
of
miscellaneous ‘non-business’ items such as alimony, interest,
charitable cantributions and medical expenses which (if the Standard
Deduction is not taken) are ordinarily deductible in arriving at taxable
income.
The Americans also score heavily on administrative grounds with their
system of
per
capita
‘Exemptions’ in the uniform amount of
$600,
when
compared with our system of Personal Allowances and Old Age Relief.
Under the
U.S.
Code, a taxpayer gets a personal ‘Exemption’ of
$600
in
arriving at the amount of his taxable income from his gross income;
an additional Exemption for hia wife (if he files a joint return)
;
and one
for each dependant, whether a child
or
other dependent relative. Additional
Exemptions of
$600
are allowed to blind taxpayers, and to taxpayers
over
65.l
On the other hand, there are a number
of
refinements in the
U.S.
tax code not present in our own. Furthermore, to supplement their system
of ‘withholding’ tax on wages and salaries (the equivalent of our P.A.Y.E.)
the
U.S.
Code requires Declarations of Estimated Tax which provide
so
far as practicable for current payment of tax not collected through
withholding.
The subject responsible for the greatest complexity, however, is the
treatment of capital gains, which have always been taxed as income,
but since
1922
at reduced rates. ‘In the
34
years since the adoption in
the statute of the term “capital gain” we have not succeeded (states Professor
SurreyB) in obtaining a workable concept for that term. The income tax
provisions of the Internal Revenue Code of
1954
represent probably the
most complex revenue law ever enacted anywhere. The subject singly
responsible
for
the largest amount of this complexity is the treatment
of
capital gains and losses. Yet despite all this complexity,
we
have not
achieved our goal
of
a precise definition of capital gains’.
’The
Standard Deduction and the
per
cabita
Exemption system
were
products of special
campaigns for simplification.
The
first was introduced in 1941 and the second in
1944.
See, however, Papers by Professors
Atkeson
and Blum
as
to
the
harmful consequences of
the
subsequent trend towards increasing complexity, in
Federal
Tax
Porky
for
Ecommu
Growth
and
Stability,
(1955).
’Hearing5 12th December
1955,
before the Sub-committee
on
Tax Policy
of
thr
Joint
Congressional Committee
on
the Economic Report, 84th Session
of
Congress.
70
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