“In a 2019 paper, economists Jeffrey Liebman and Daniel Ramsey ran through the changes the US would have to make to adopt this system of exact-withholding. Under this approach, used by the UK, Japan, and others, “the majority of taxpayers do not need to file tax returns. Instead, these countries use withholding systems in which the correct amount of tax is withheld during the year.”
That could be us — so why isn’t it? They offer four big aspects of the US tax code that prevent it.
The first is the complex system of benefits for families with children. Creating a simple monthly child benefit would solve that.
The second is that capital income like interest and stock capital gains aren’t “taxed at the source”: your broker doesn’t automatically tax, say, 30 percent of the proceeds from selling stock and send it to the IRS. Creating a flat tax on capital imposed at the source would eliminate filing requirements for most people with this kind of income.
Third is the numerous deductions in the tax code. Most of these, like the mortgage interest or charitable deductions, don’t come up much in VITA because it’s almost always more advantageous for clients to claim a standard deduction — but things like the education credits do come up, and removing them would simplify our clients’ lives.
Fourth and most important is eliminating joint returns and moving to individual-based taxation. Joint filing makes precise withholding much more difficult because employers would need to know the earnings of each of their employees’ spouses in order to withhold correctly. If everyone’s taxed as an individual, then eliminating joint filing wouldn’t mean couples would have to file two returns: They’d have to file zero because precise withholding would be possible.”
https://www.vox.com/policy/2023/4/15/23682351/irs-vita-volunteer-tax-policy