Edition: U.S. / Global

Viewpoints; Form 1040? What's a Form 1040?

Published: April 11, 1993

BILL CLINTON has proposed one of the most sweeping tax-reform programs in a decade, but most Americans don't really understand what he is talking about. This will become even clearer when taxpayers face up to the annual rite of filing returns for 1994, the first year that would be affected by any Clinton overhaul.

If his efforts to rally the nation behind his tax program are to succeed, the President must recognize that the country is suffering from a massive case of tax illiteracy that goes beyond the inherent complexity of the system and cuts across every economic and educational stratum.

Six in 10 Americans use someone else to prepare their Federal returns. Nearly 40 percent of those people turn to professional preparers because they believe it is too difficult or because they don't know how to complete a return. An additional 30 percent feel that professionals will save them money or protect them from making costly errors.

Research shows that more than half the population does not know the meaning of a progressive tax system -- in which the more you earn, the higher your tax rate -- even when given the correct answer in a multiple-choice question.

THE level of understanding drops even more with terms and concepts that taxpayers have to deal with in preparing returns.

Three in four do not understand that to be in the 28 percent bracket means that only the highest portion of a person's income is taxed at 28 percent. And only half know the difference between itemized and standard deductions -- items that must be understood to complete a return.

Compare key terms in the President's tax initiatives with the nation's tax understanding. The knowledge gap is striking. For example, nearly 8 people in 10 don't know that a tax credit, rather than a tax exemption or deduction, can reduce taxes the most. Eight of 10 also cannot define value-added taxes -- one remedy that has been proposed to help raise revenues.

Is it any surprise that Americans perceive so much inequity in the system -- especially when they understand so little about it and face such complexity in trying to comply with the rules?

To gain support for his program, the President needs to help people understand the tax system. But for true reform to occur, he must spearhead a program to simplify the tax system and make it accessible to all Americans.

Here's what the President should do:

* Make the tax system part of the educational curriculum and begin teaching in high school, or even earlier, how the system works.

* Create a "Tax Channel" on television, where people can learn tax basics and preparation.

* Set up an on-line Internal Revenue Service data base to give the growing number of taxpayers with personal computers instant access to learning materials and electronic forms.

* Simplify the tax forms. Make them easier on the eye by using more white space, fewer typefaces and frequent headings. Use plain English, more charts and examples, and instructions that teach with an easy-to-follow "how to" format. Be more informative and less adversarial in tone.

* Set a national goal of simplifying and streamlining the taxpaying process, and make it a continuing and visible part of the Administration's overall political agenda.

President Clinton is asking the nation to sacrifice for the future. Taxpayers need to understand how the system works, to have confidence that everyone shares the burden and to know they can pay their taxes without the help of experts. This would go a long way toward encouraging tax compliance rather than tax avoidance.