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.
But as ProPublica has detailed again and again, Intuit — the makers of TurboTax — and H&R Block have lobbied for years to derail any move toward such a system. And they continued in 2016.
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.
Intuit has repeatedly warned investors about the prospect of government-prepared returns. “We anticipate that governmental encroachment at both the federal and state levels may present a continued competitive threat to our business for the foreseeable future,” Intuit said in its latest corporate filings.
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…
Joseph Bankman, a law professor in tax law at Stanford Law School said arguments about government overreach are false. Participation is voluntary and actually gives taxpayers the upper hand, forcing the government to “show its hand.”
“Now you know what the government knows,” Bankman said, who added that there are multiple ways taxpayers could benefit. “If there’s a mistake that goes in your favor, maybe you don’t call attention to it.” Also, everyone would receive the returns — including the millions of Americans who are due tax refunds but don’t get them because they don’t file. In 2012 alone, the IRS said more than 1 million Americans did not receive their refunds — amounting to $950 million — because they did not file.
The authors of the federal Free File bill have repeatedly voiced fears of big-government interference. In an opinion piece for The Daily Caller and on his site, Rep. Peter Roskam, R-Ill., said “making the tax collector also the tax preparer creates an inherent conflict of interest while forcing citizens to relinquish control of their taxes to the government.”
Since the 2008 election cycle, Roskam has taken in more than $32,000 in donations from Intuit’s political action committee and Intuit employees. He received a far smaller amount, $2,500, from H&R Block — all for the 2016 election cycle. Roskam’s office did not return a request for comment.
A really fascinating policy story that doesn’t get enough attention is the fact that we could actually dramatically simplify the process of doing taxes for most individuals, but the sheer complexity of the tax code has created a constituency to defend its complexity. Tax prep firms like H&R Block and Intuit make massive amounts of money from the tax code being so hard to manage that people need their help, and thus acquire the resources to ensure that the very problem which the exist to help with is not solved.
Another interesting twist to this story is that one of the easiest ways to simplify the tax code, something small government conservatives talk about frequently, is by giving the IRS more power.
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