The deadline for filing one’s taxes in the US is April 15th of each year though this year it is April 18 due to holidays. I always do our own tax returns without using any commercial software and just finished preparing our tax returns. Over the years I have developed my own spreadsheet that automates much of the process, so each year requires just a few tweaks to update it. But it still took many hours of work over many days. Most people cannot be bothered to learn how to do their taxes on their own and either turn to paid preparers or buy commercial software, little realizing that they are being coerced into doing this by the collusion of tax preparation companies and the government that deliberately keeps the process complicated.
Jessica Huseman of ProPublica writes that for the overwhelming majority of people, it should not be like this.
Here’s how preparing your taxes could work: You sit down, review a prefilled filing from the government. If it’s accurate, you sign it. If it’s not, you fix it or ignore it altogether and prepare your return yourself. It’s your choice. You might not have to pay for an accountant, or fiddle for hours with complex software. It could all be over in minutes.
It’s already like that in parts of Europe. And it would not be particularly difficult to give U.S. taxpayers the same option. After all, the government already gets earnings information from employers.
So why doesn’t the US have this system? Because just like the insurance companies with health care, there are people in the middle who oppose any such simplification because they benefit from the needless complexity imposed on people. And they lobby the government hard to make sure that no such simplification takes place.
Intuit spent more than $2 million lobbying last year, much of it spent on legislation that would permanently bar the government from offering taxpayers prefilled returns. H&R Block spent $3 million, also directing some of their efforts towards the bill. Among the 60 co-sponsors of the bipartisan bill: then congressman and now Health and Human Services Secretary Tom Price.
The bill, called the Free File Act of 2016, looks on the surface to be consumer-friendly. It makes permanent a public-private partnership in which 13 private tax preparation companies — called the “Free File Alliance” —have offered free online tax filings to lower- and middle-income families. The Free File Alliance include both Intuit and H&R Block.
But the legislation would also permanently bar the IRS from offering its own free alternative.
Sen. Elizabeth Warren, D-Mass., offered a bill last year that would have actually allowed the government to start offering prefill tax returns. While Intuit did not lobby against Warren’s bill — presumably because the legislation had little chance of success — tax giant H&R Block did. (H&R Block did not respond to a request for comment.)
Neither Warren’s bill nor the Free File Act made it out of committee.
Very few of those eligible for the industry’s no-charge filing program actually use it, perhaps because the system is confusing and pushes people toward paid products.
While the Free File Alliance says 70 percent of U.S. taxpayers can use the service, less than 2 percent of all individual tax returns were filed through the program in last year, according to a National Taxpayer Advocate’s report to Congress.
“Let’s call the so-called Free File Alliance what it really is — a front for tax prep companies who use it as a gateway to sell expensive products no one would even need if we’d just made it easier for people to pay their taxes,” said Warren in a statement to ProPublica.
When members of congress talk about ‘simplifying’ the tax code, they are not talking about the kind of thing Warren is trying to achieve and Huseman recommends. Their ‘simplification’ is a Trojan horse designed to give even more benefits to the wealthy by reducing the tax rates in the higher income brackets or reducing capital gains tax rates. (See Paul Buchheit’s article on how the tax system favors the wealthy.)
This is partly why I grit my teeth and do my own taxes. I do not see why I should give in to what is essentially extortion by the tax preparation companies, let alone give them access to all my personal information.