How tax software companies fought simple tax filing


The way we file taxes in the US is odd. For most of us, almost all the documents that we use to prepare our tax returns are also provided directly to the government, so the government has the same information that we use. We then prepare our returns, send it in, and the government checks to see if we did it right. Surely it would make more sense for the government to calculate our taxes and then send us a statement to check to see if there was any error, the way that credit card companies compile a bill based on all our expenditures and then tell us how much we owe. If we wish, we can check their calculations with the receipts we have. Countries like Denmark, Sweden, and Spain already have such systems.

Of course, taxes are more complicated than credit card bills and there may be some things that we need to inform the government about, like how much we gave to charity. As far as my own taxes are concerned, our contributions to charity are the only things that the government does not know in advance of our filing. But that can be easily dealt with by us sending in a statement to the government of the total amount of charitable contributions.

Of course, there will be some people and businesses that have taxes so complicated that they cannot trust the government to get it right and need to hire accountants. But for most individuals, taxes should be something that the government can do pretty easily without error. And the system could be made voluntary, so that you could do your taxes yourself if you wanted to.

So why don’t we have that system? Simple. As ProPublica reports, companies like TurboTax that sell tax preparation software have lobbied Congress hard to prevent that change from happening. Not only that, they like the tax policies to become even more complicated so that it drives more people to them. Conservative anti-tax activists like Grover Norquist also oppose making tax filing easier because they use the aggravation to aid their anti-tax pitch.

So much of the nation spends a lot of time and energy in the first quarter of the year doing something that the government could do more easily and efficiently, just in order to funnel money to those companies.

Comments

  1. left0ver1under says

    It’s not just the taxpayers who find the US system overly convoluted. I’ve seen news stories on IRS employees who can’t figure out how to do it, how different people can get different results with the same information.

    Another group that hates simple tax systems “tax preparers” like H&R Block. They offer people “early refunds” in exchange for a fee, but honesty isn’t part of their service. If they “make a mistake” – deliberately or not – it is the taxpayer who must make up the difference. “Preparers” aren’t actually giving out refunds, they’re loaning money, and the filer is the person liable for any mistakes. It’s a ridiculous system that rewards false filing by said companies because they get paid no matter what happens to the taxpayer.

    In Canada, you’re allowed to mail in the forms unfilled – your taxable income, deduction forms etc. – and the CRA employees will do it for you. That’s one of the benefits of a simpler tax system (though many people still do it themselves because they don’t trust civil servants). The CRA also offers e-filing, online payment of taxes, which is also simple and done quickly.

    http://www.efile.cra.gc.ca/

    Tax filing in the two countries mirrors their election processes – in Canada, both are simple and done with a pencil, while in the US they’re both computerized and prone to fraud by corporations who donate to politicians.

  2. grizzle says

    Interesting post.

    Off topic but this is very similar to the grip that the airline lobby has on Congress and why we do not have a high-speed rail system in place. It’s against the interests of the airline industry as a whole. I know Southwest Airlines is particularly opposed to it.

  3. Pierce R. Butler says

    For the (minority who are) self-employed, the government wouldn’t be able to do anything useful in the way you suggest.

    I own a couple of houses that I rent out: some years I spend a lot on maintenance and repair, some years much less. My tenants don’t tell the feds how much they pay in rent, so the IRS has no clue about either my income or my business expenses.

    None of which contradicts your main point: the system is deliberately taxpayer-hostile.

  4. Vote for Pedro says

    Lakewood* will do your taxes for you if you let them know a month ahead of time. They’re not in either local consortium**, and they make you pay estimated tax quarterly, but they will do the taxes. They actually found a mistake in the ones I filed myself last year, asked for the documents they needed to fix it, and refunded the $10. And the staff is always pleasant and helpful.

    So it can be done…

    (For those unfamiliar with Cleveland:
    * Suburb just west of Cleveland
    ** There are two consortia of local governments in the Cleveland area which consolidate local tax operations and make it easier for folks who live in one city and work in another.)

  5. Cathy W says

    Also, how’s this one: for the most part, you can’t e-file your taxes directly to the IRS, but must go through third-party tax-filing software or file by mail, and if you owe the IRS money, you can’t pay them directly, but must go through a third-party payment processor, who charges a “convenience fee” of something like 2-3%. How much money would taxpayers be saved if they could e-file directly with the IRS and pay the IRS directly? What benefit is there to having the middlemen in the process?

  6. says

    Well, why not? It would be much easier in our part . In the government’s side, they need to hire people to input data in the computer and people who will individually locate every citizen to ask about their income. It would be a waste of resources. It is our obligations as residents of the state to file our own income taxes.

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