IN 2010 a panel created by the White House estimated that American taxpayers spend 7.6 billion hours and some $140 billion a year keeping the IRS off their backs. According to the Washington Post over 80% of taxpayers use software or pay someone to file their taxes. The national taxpayer advocate, a sort-of in-house IRS watchdog, once said, “If tax compliance were an industry, it would be one of the largest in the United States.” But of course, it is an industry.
It is an industry made up of accountants and companies like HR Block and Intuit, which makes the TurboTax software used by many Americans. And it is an industry that, according to ProPublica, has worked hard to keep the IRS from preparing your tax returns for you for free. Intuit, for example, has spent millions lobbying the federal government, opposing bills that would allow the IRS to send you pre-filled-in returns (the agency already has most of your relevant information) and supporting bills that would ban the practice.
A large number of Americans might cringe at the idea of allowing the IRS to prepare their tax returns. The agency would likely err on the side of higher taxes, right? But such a system is already in place in many European countries (where the tax codes are admittedly simpler) and there are few complaints. The system would work something like this: the IRS would use the information it already has to fill in a standard return (a rather effortless process for the government), which would then be sent to you to accept, edit or reject and replace with a new return if you think you can do better.
For those with simple tax returns the system would save enormous amounts of time and a bit of money. Most of us, though, would likely reject the IRS effort and still file our own returns using software or tax preparers. Since that’s what we’re doing anyway, it’s no skin off our backs. It may seem odd for a company like Intuit to lobby against such a system, seeing as it (like many of its competitors) already offers free tax software for filers with easy returns. But on top losing customers who might needlessly pay for the premium goods, it would lose the ability to hook taxpayers on their products before their lives, in the eyes of the IRS, get more complicated. (It’s generally easier to stick with one brand of tax software, as opposed to jumping around each year.)
A business protecting its interests in Washington is nothing new. The dynamic here is actually quite familiar to tax analysts. Intuit stands to lose a lot more than any individual taxpayer stands to gain from IRS-prepared returns. It is this same dynamic that keeps America’s byzantine tax code, which is the underlying problem, in place. The code is a complicated mess because the gains any individual taxpayer might experience from reform pale in comparison to the losses that would be experienced by certain interest groups. As Jonathan Bernstein puts it, “Revenue-neutral tax reform almost certainly creates marginal winners and solid losers, which means that tax reform legislation produces intense opposition and mild support.”
That is why politicians, like Paul Ryan, speak of tax reform in vague (unrealistic) terms. The details would provoke outrage from groups with armies of lobbyists who are willing to storm Washington in order to hang onto their favourable treatment. Just look at the effort put forth by Intuit. The suffering masses, meanwhile, will remain home, quietly cursing each question posed by their TurboTax software.
(Photo credit: AFP)
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