How Computers Changed the Tax Game

As April 15 approaches, Americans across the country are filled with dread as they file their taxes and watch money disappear from their pockets. If history provides any relief, we are not the first to feel the burden. In 1789, Ben Franklin famously wrote, “In this world nothing can said to be certain, except death and taxes.” Albert Einstein reportedly said, “This [filing taxes] is too difficult for a mathematician, it takes a philosopher.” At the 1988 Republican National Convention, George H.W. Bush memorably preached, “Read my lips: No new taxes.”

Yet from Ben Franklin’s quips to George H.W.’s lips, American tax policy has gone through some dramatic changes. The first income tax was imposed in 1861 to fund Union troops during the Civil War. In 1913, the 16^th amendment to the Constitution established a regular federal income tax. It was not until WWII that the government began taking money directly from employees’ paychecks. Then, in 1961, tax collecting fundamentally changed again when the Internal Revenue Service began using computers.

Right on the Button (Local ID: 58-2)

The film above was created in the late 1960s. It is part of a small collection of films that was produced by the IRS, and now preserved at the National Archives. This particular film, Right on the Button, showcases the “new tax tool” known as Automatic Data Processing (ADP) at the National Computer Center in Martinsburg, West Virginia. The film follows tax returns as they are transferred, processed, and fed into the ADP system. Viewers today are more likely captivated by the refrigerator-size computers and 1960s hairdos (see 6:27). But, the IRS created this film with a purpose: convince citizens that computers were beneficial.

When the IRS began using computers in 1961, many people were horrified. An article in Harper’s Magazine titled, “The Martinsburg Monster: A True Horror Story for Taxpayers,” described how computers limited the possibilities for refunds. A tax expert then envisioned a scenario in which erroneous notices forced people to overpay, or $100 million dollars in unwarranted refund checks were issued.

The shift towards computer technology also made Internal Revenue Commissioner, Mortimer Caplin, a well-known and controversial figure. One reporter accused Caplin of “bringing Big Brother into everyone’s life in the form of the Martinsburg Monster.” In February 1963, Caplin was the cover story of Time magazine, in which he supported the changes made under his administration. Controversy surrounding the IRS computers was not limited to water cooler conversations, it was reflected in the mass media.

Right on the Button attempts to combat these technology driven fears. The film highlights the benefits of a computerized system: Computers could speed up processing times, discover errors taxpayers make against themselves, and verify that all citizens pay a fair amount. Additionally, the film emphasizes the IRS employees who maintain and check the ADP system. This was likely an attempt to quell fears that computers would replace human jobs.

The shift towards computerized tax processing was revolutionary in catching tax evaders. ADP was used to compare an individual’s tax return with records from their employer; any discrepancies were then flagged for further investigation. Soon after implementation, the ADP system caught people filing duplicate returns and attempting other refund schemes.  Many refund checks were also withheld until taxpayers paid their dues from previous years. Fewer people got away with cheating, and many more were afraid to even attempt it.

In 2012, the IRS reported that 120 million people filed their taxes electronically. It seems that people no longer view computers as monsters. Then again, monsters are much less scary when they can fit on your lap.