It’s absurd that we have to file taxes at all, much less that we have to pay a industry extra money to do something unavoidable. Ever heard of the Tax Complexity Lobby? Seriously. The tax-preparation industry lobbies strenuously against any system that makes taxes easy. The Tax Complexity Lobby, includes big national preparers like H & R Block and tax-prep software companies. Intuit, the maker of the top-selling program TurboTax, has reportedly spent millions over the years to persuade members of Congress to “oppose I.R.S. government tax preparation.” In an annual report, the company warned investors that “government encroachment” — the I.R.S. filling out the forms for you — would be a significant competitive threat, which is why it has to fight the idea. So you do more work, they make more money. Any part of that seem wrong to you?
In Japan, you get a postcard in early spring from Kokuzeicho (Japan’s I.R.S.) that says how much you earned last year, how much tax you owed and how much was withheld. If you disagree, you go into the tax office to work it out. For nearly everybody, though, the numbers are correct, so you never have to file a return.
What’s going on in these countries — and in many other developed democracies — is that government computers handle the tedious chore of filling out your tax return. The system is called “pre-filled forms,” or “pre-populated returns.” The taxpayer just has to check the numbers. If the agency got something wrong, there’s a mechanism for appeal.
Our own Internal Revenue Service could do the same for tens of millions of taxpayers. For most families, the I.R.S. already knows all the numbers — wages, dividends and interest received, capital gains, mortgage interest paid, taxes withheld — that we are required to enter on Form 1040.
The I.R.S. sends out a letter called a CP2000 Notice by the millions every year. This is the form that says: You entered $4,311 on Line 9b, but the reports we have on file say the figure should have been $4,756. I get these letters now and then — the revenue service is always right — and it makes me mad. If the government already has all this stuff, why did I have to spend hours digging through receipts and statements and 1099 forms to report what the I.R.S. already knows? Not to mention how much money the government could save by getting tens of millions of uncertain taxpayers out of the filing cabinets and away from the pocket calculators.
If you’re paid strictly in wages and, like nearly 70 percent of Americans, you claim the standard deduction rather than itemizing, you’re familiar with the drill: You get a W-2 from your employer listing what you were paid and how much tax was withheld. Next (unless you shell out for pro prep) you fill in some blanks, do some math, squint at a tax table, sign your name, drop the form in the mail, and worry that you screwed it up. And you very well may have—the IRS finds more than two million mistakes every year. These are spotted easily enough, because the IRS got the very same W-2 figures, did the same math, and filled out the same form.
All this redundancy can’t really be necessary, right? Sure enough, because return-free filing already exists in such forward-thinking locales as Japan, Denmark, Sweden, and Spain, where the government basically does just what makes sense: they send out a bill for taxes due—or a refund of overpayment—for the recipient to approve. Even here in the U.S., you don’t have to compute your property taxes yourself, so why can’t you just kick back and wait for the IRS to figure out your income tax?
The government said it receives the necessary information too late in tax season, they claimed, so a return-free system would delay refunds and anger impatient taxpayers. Which sure sounds like a dodge—is the IRS, the one federal agency even less beloved than the TSA, really afraid people will be mad at it?
You’d figure typical deficit-hawk conservatives would be happy to save the money the IRS wastes every year confronting the American taxpayer’s inability to subtract correctly. Ronald Reagan himself endorsed return-free filing in 1985. But small-government zealot Grover Norquist and his group Americans for Tax Reform oppose efforts to streamline the filing system, preferring reforms that “enhance voluntary compliance.” A weaselly phrase, that—no arms would be twisted by offering a return-free option, and completing a 1040 hardly means you’re “volunteering” to pay taxes. The more likely reason for the resistance is that the proposed set-up would make the tax “simplification” Norquist favors—lopping off upper tax brackets, mainly—a much harder sell. If you’re trying to paint U.S. taxation as hopelessly burdensome, the last thing you want to see is the IRS transformed into an agency that just mails Americans a refund check every year.
Meanwhile, special-interest groups are in the trenches trying to shoot down return-free pilot plans. In 2005, California adopted a program called ReadyReturn, which allows qualified residents to opt for a pre-completed tax return rather than fill out their own. The state estimates that the new process has saved millions a year in prep fees and about a half a mil in government administrative costs, and taxpayers who’ve used the service are overwhelmingly pleased. Thing is, not many Californians take advantage of it—in 2012, only 90,000 out of the approximately one million eligible—and officials complain they've had a hard time getting the word out. That’s because software manufacturer Intuit, the maker of the prep app TurboTax, wants it that way: according to a 2013 investigation by the nonprofit journalism outfit ProPublica, the company spent more than $3 million in lobbying and campaign contributions between 2005 and 2009 fighting ReadyReturn. Intuit didn’t manage to kill the program outright, but the state’s budget for marketing it was cut to a dinky $10,000.
The Tax Complexity Lobby depends on taxes being complex and frustrating to make money. But we the people already pay the IRS to do the work once. Why pay a second time with the money we get to keep for a duplicate effort by the tax prep industry? There is no need.