“The government imposed the income tax burden in the first place,” said former California Republican legislator Tom Campbell about the process of filing income tax returns. “So if it wants to make it easier, for heaven’s sake, why not?” But two companies that sell tax preparation software and services have been lobbying tooth and nail against making it easier—and won.
The theory is that the IRS knows in advance much of the data in an individual income tax return before it’s filed: wages and benefits via the W-2 submitted by the employer, investment income via the various Forms 1099 submitted by banks, brokers, and others, and so on. For taxpayers who don’t itemize or have other headaches, like a Schedule C, the IRS already has the data from current and prior years to fill out the tax return and do its own calculations.
So in theory, the IRS could allow taxpayers with uncomplicated tax returns—about 40% of the 147 million people expected to file this year—to log in and see this data in form of a tax return. You could check it, accept it as is, and “file” the return with a click. Or you could make any changes needed, and if happy, click to “file” it. If unhappy or uncertain, or just in the mood for supplementary punishment, you could reject the return, and start over again on your own, the hard way.
It’s called “return-free filing.” ProPublica pushed it to the forefront. It would be free and so easy and fast that it’s sickening we haven’t thought about it sooner. Okay, so people thought about it sooner: President Ronald Reagan endorsed it long before the Internet became ubiquitous.
It already exists in other countries. And in California, where it’s called ReadyReturn (for state income taxes). When it was launched in 2005 as pilot program, it smacked into fierce opposition from Intuit, whose TurboTax is used by about 25 million Americans (including me, a long-time satisfied user). In an effort to kill ReadyReturn, Intuit spent over $3 million on nearly 120 politicians. Still, they weren’t able to kill it. The program is alive and well, but it purposefully has no marketing budget, and so few people know about it.
If a similar system were available for federal tax returns, tens of millions of people would be able to use it, saving by some estimates, according to ProPublica, a stunning 225 million hours and $2 billion in preparation costs per year, including software purchases.
But that $2 billion that people would save is money that some companies wouldn’t make, most prominently, Intuit. Last year, revenues from TurboTax amounted to 35% of Intuit’s total revenues of $4.2 billion.
So, over the last five years, Intuit plowed $11.5 million into federal lobbying, more than Apple or Amazon, though the company is dwarfed by the two. On its lobbying disclosure forms, Intuit is explicit: “Oppose IRS government tax preparation.” ProPublica notes:
The disclosures show that Intuit as recently as 2011 lobbied on two bills, both of which died, that would have allowed many taxpayers to file pre-filled returns for free. The company also lobbied on bills in 2007 and 2011 that would have barred the Treasury Department, which includes the IRS, from initiating return-free filing.
Excessive government involvement is held up as reason why the IRS shouldn’t insert the data it already has into an online tax form. A fig leaf. The IRS is already involved in taxes, as Tom Coburn pointed out so eloquently. Participation would be voluntary, unlike filing tax returns. Taxpayers could make changes or reject it altogether. Return free filing would simply be another option. And the IRS would disclose its version of the tax return upfront.
Intuit claims that return free filing could cause taxpayers to miss things here and there and end up paying more in taxes. It calls return free filing a “massive expansion of the US government through a big government program.” I mean, come on. Intuit should just come out and say that it fears for its livelihood.
Um, it does that. Tucked into its 10-K Annual Report for the fiscal year ended July 31, 2012, on p. 17, under Risk Factors:
Our consumer tax business also faces significant competition from the public sector, where we face the risk of federal and state taxing authorities developing software or other systems to facilitate tax return preparation and electronic filing at no charge to taxpayers. These or similar programs may be introduced or expanded in the future, which may cause us to lose customers and revenue.
So there. That’s why it’s throwing so much money at Congress. Lawmakers can’t walk away from money. In return, millions of taxpayers have to pay the price—in hours and dollars. For the benefit of a couple of companies. This, of course, is just a tiny example of how thousands of companies on a day-to-day basis grease the wheels in Congress.
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