How the tax software industry lobbied against free, simple tax filing


The non-profit investigative journalism outfit ProPublica just received its third Pulitzer Prize in seven years since it started in 2008. The organization is one that I have been financially contributing to for some time. It was created at a time when newspapers were cutting back on investigative reporting because of the cost involved, though one could argue that it should be the heart of any news outlet.

The ProPublica model is to have a team of about 45 investigative journalists and that each story that it researched would be released via a regular news outlet that varied from story to story. This enabled the news outlet to get investigative journalism for free, while ProPublica had a way of getting the news out. You can read how the model works here.

One of the stories it has worked on jointly with NPR is how the creator of the tax preparation software company TurboTax actively lobbies against any attempt to make tax filing in the US simpler, because simpler taxes means fewer customers for them.

Imagine filing your income taxes in five minutes — and for free. You’d open up a pre-filled return, see what the government thinks you owe, make any needed changes and be done. The miserable annual IRS shuffle, gone.

It’s already a reality in Denmark, Sweden and Spain. The government-prepared return would estimate your taxes using information your employer and bank already send it. Advocates say tens of millions of taxpayers could use such a system each year, saving them a collective $2 billion and 225 million hours in prep costs and time, according to one estimate.

The idea, known as “return-free filing,” would be a voluntary alternative to hiring a tax preparer or using commercial tax software. The concept has been around for decades and has been endorsed by both President Ronald Reagan and a campaigning President Obama.

“This is not some pie-in-the-sky that’s never been done before,” said William Gale, co-director of the Urban-Brookings Tax Policy Center. “It’s doable, feasible, implementable, and at a relatively low cost.”

So why hasn’t it become a reality?

Well, for one thing, it doesn’t help that it’s been opposed for years by the company behind the most popular consumer tax software — Intuit, maker of TurboTax. Conservative tax activist Grover Norquist and an influential computer industry group also have fought return-free filing.

Intuit has spent about $11.5 million on federal lobbying in the past five years — more than Apple or Amazon. Although the lobbying spans a range of issues, Intuit’s disclosures pointedly note that the company “opposes IRS government tax preparation.”

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.

Of course, TurboTax is not the only one that benefits from complicated taxes. A complicated tax system is a boon to tax accountants and lawyers and wealthy people because the more Byzantine the system, the easier it is to hide the benefits tucked away for the wealthy because of the many loopholes. A telling indicator is that Grover Norquist, whose ostensible main goal is to lower taxes for the rich, opposes tax simplification even though it has nothing to do with tax rates. It is likely because he knows that a complicated system results in the wealthy paying lower taxes.

Senator Elizabeth Warren had revived the effort to simplify the tax process and you can be sure that the same culprits will go after her. But she is really dogged and once she gets her teeth into an issue she is not easily defeated. So let’s hope.

Comments

  1. Menyambal says

    I just did my taxes. OMFG. I took two days off work, and drove a long way to a last-minute mailbox. That was for a family of three with no investments and one student. Geeze.

    Yes, the system should be exactly as described in your quote. The government has all the info, already. Just gin up an online form so we can click “Consent”. Dang.

    My state has PDF forms that are fillable and calculating, and the Feds have fillable PDFs. But I can’t e-mail them in – no, I have to print and to buy stamps.

    H&R Block was advertising some sort of lottery where they were giving away mass quantities of money to customers. I kept thinking of how much more money than that the corporation must be making.

    It should not be the way it is. I need to use my leftover envelope and stamp to send a letter of support to Elizabeth Warren.

  2. Lassi Hippeläinen says

    Here in Finland we like a system that is smooth. We used to have a very bureaucratic system, but even the tax collectors finally realised that it was everybody’s benefit to get rid of the attitude of a boot camp sergeant.

    My pre-filled tax report arrived last week. Spent one minute checking it. Seemed OK, no need for action. Not even to send “consent”, because that is the default setting. If I don’t return the report with my corrections before the deadline, I have consented.

    BTW, a prepaid return envelope was included. A small gesture, but saves lots of trouble.

  3. says

    Ugh, tax time is the worst. Would be amazing if we were simply able to click “consent” and be on our way. Sounds like it works pretty well in Finland and the other countries that you listed.

Leave a Reply

Your email address will not be published. Required fields are marked *