WHEN JANET YELLEN was nominated to be Secretary of the Treasury, the Senate Finance Committee staff went over her tax returns with a magnifying glass. Yellen, an economics PhD who taught at Harvard, always prepared the returns for herself and her husband, economics Nobel laureate George A. Akerlof.
“She discovered to her surprise that she had been doing the family taxes wrong for years,” reports Owen Ullmann in his excellent new biography of Yellen, Empathy Economics. “She had listed George’s book royalties on Schedule E, which is for rents, royalties, and partnerships. That seemed the logical thing to do but it was wrong.”
Book royalties, it turns out, “go on Schedule C, which is for income from a sole proprietorship or profession.” The mistake meant that they’d overpaid their taxes for years because, on Schedule C, they could deduct more business expenses from his royalty payments. Still, as a result of Yellen’s error, they had to amend their past returns and refile them.
This time, though, they had to ransack their records to document every last deduction. Yellen found “the level of scrutiny horrendous and the entire process abusive,” according to Ullmann, who was granted a dozen interviews with her in preparation for his book.
Let me just say this: If Janet Yellen can’t get her taxes right, what hope is there for the rest of us?
I just spent the morning estimating my quarterly tax payments owed to the federal government and the state of Pennsylvania. I found the process as easy as getting tickets to a Taylor Swift concert—only more expensive and without any music at the end.
Please understand: I don’t mind paying taxes. As someone once said, they’re the price we pay for civilization—if that’s what you call this. No, it’s the complexity that I find vexing. If this were an Olympic competition, filing your taxes should rate an 11 out of 10 on the degree of difficulty.
When I find things hard, I tend not to blame myself—although, honestly, a lot of this is on me. No, I begin to grouse about the confounded system. I mean, who in their right mind would have you mail a check to “P.O. Box 37008, Hartford, CT 06176-7008” if they were trying to make your life easy?
Believe me, I make it hard enough by myself already. Our printer is on the third floor and the checkbook the first. Naturally, I roamed back and forth multiple times because I made various “mistakes,” like listing my wife first on the quarterly payment form when I’m listed first on our Form 1040.
I’ve learned the hard way that the IRS doesn’t get it when you switch the order of names. The lesson: Don’t be chivalrous.
Then there’s Googling the standard deduction, the income tax brackets, the tax treatment of Social Security income and the FICA tax rate for self-employed people. This all came after we’d estimated our income from five different sources.
I tried to find a quick and easy tax calculator online. Each one turned into a chapter from a Franz Kafka novel, wanting more and more detail until I lost the will to go on. I had to hold my old calculator up to a window to get its solar battery to turn on. Eventually, I switched to my iPhone, so now perhaps hackers and Vladimir Putin know how much I make.
Maybe Yellen can do something about all this. After all, she’s in charge of the IRS. Yet it will take an act of Congress to give us what taxpayers in many countries in Europe already have. Their taxing authorities simply email taxpayers a completed tax return, made from records already reported to the government. The whole process takes taxpayers 10 to 15 minutes to double-check and approve.
Each year, I lose days of spring sunshine to tax preparation. I just hope I do a better job than Yellen.
Before she was Treasury Secretary, Yellen was chair of the Federal Reserve. And before that, she served as chair of the President’s Council of Economic Advisors. At every stage, Ullmann notes, Yellen’s work has been defined by meticulous overpreparation. Yet it’s no match, apparently, for the intricacies of the U.S. tax code.
Greg Spears is HumbleDollar’s deputy editor. Earlier in his career, he worked as a reporter for the Knight Ridder Washington Bureau and Kiplinger’s Personal Finance magazine. After leaving journalism, Greg spent 23 years as a senior editor at Vanguard Group on the 401(k) side, where he implored people to save more for retirement. He currently teaches behavioral economics at St. Joseph’s University in Philadelphia as an adjunct professor. The subject helps shed light on why so many Americans save less than they might. Greg is also a Certified Financial Planner certificate holder. Check out his earlier articles.
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