A stark new poll has exposed a significant deficit in financial understanding among the American public, with more than half of respondents found to lack basic knowledge of their own tax system.
The Scale of the Problem
The 2024 National Tax Literacy Poll, conducted by the Tax Foundation, delivered concerning results. It found that just 2 percent of respondents demonstrated 'proficient' tax knowledge, while a majority failed to meet the threshold for 'basic tax literacy'.
Caroline Bruckner, a tax professor at the American University Kogod School of Business and managing director of the Kogod Tax Policy Center, warned the issue has 'very real consequences'. She stated that too many Americans are unclear on fundamental aspects, such as payment deadlines and how their tax liability is calculated.
Real-World Consequences for Taxpayers
This knowledge gap forces many to rely on paid accountants, diverting funds from other essential needs. For small business owners and the self-employed, the risks are even greater.
'They may be overly aggressive with claiming deductions that aren't really deductions, and it could get them into trouble,' Bruckner explained, highlighting how a poor grasp of allowable expenses can lead to serious compliance issues.
A core misunderstanding, according to Bruckner, surrounds the progressive nature of the federal income tax system. Many do not fully comprehend that higher earnings lead to a higher marginal tax rate, a concept crucial for effective financial planning.
Calls for Action and Where to Find Help
Professor Bruckner is urging officials at federal, state, and local levels to invest more resources in public tax education. 'It's not enough to fund the collection of tax,' she argued. 'You have to fund the education of the tax base.'
She also cautioned taxpayers against using generative AI for tax preparation currently, stating it is 'not yet smart enough to do a reliable job on tax returns.'
For those seeking assistance, the Internal Revenue Service's Volunteer Income Tax Assistance (VITA) programme offers free tax help. This service, available in every state, is designed for qualifying individuals, including those earning around $67,000 or less, persons with disabilities, and limited English-speaking taxpayers.
The IRS website itself also hosts educational materials for those aiming to improve their understanding. As the Tax Foundation's report concludes, tax literacy impacts a wide array of life decisions, from financial planning and career moves to where one lives and how they vote, underscoring the critical need for improvement.
