Filing federal taxes is never fun. And for millions of Americans, it is much more complicated than it needs to be.
For that, blame the lobbying power of the country’s leading tax preparation companies and the greed of their willing accomplices in Congress.
To be sure, some tax returns are fairly involved, especially if they involve selling a house or a small business, or dealing with an inheritance from a relative. In those cases the help of a trained tax professional is a wise investment, if not an absolute necessity. For about 40 percent of taxpayers, however, the filing process is relatively simple, requiring a basic form 1040.
The task could be even easier, since much of a filer’s time is spent filling the forms with information the Internal Revenue Service already has, such as the salary and 401k information found on W-2s. It is technologically possible for the IRS to send citizens a pre-filled tax form, as happens routinely in other countries. If the information is correct, and there are no changes to be made, the filer could simply sign the form and send it back. If there are adjustments -- say, if the filer got married or divorced -- it would be a simple task to update the paperwork. All for free.
And there’s the rub.
The average American spends eight hours -- and $110 -- doing his or her taxes. Forget about the time involved, because it’s the $110 that’s really important here. Most of that money goes to private tax-preparation companies such as H&R Block and Jackson Hewitt, and to software giants like Intuit, developer of the popular TurboTax program.
If the IRS developed its own free-filing software, American taxpayers would save an estimated $44 billion over the next decade. Of course, those savings would cut into the profits of the big tax-preparation companies, which is why the industry has spent more than $6 billion in recent years lobbying Congress to make filing taxes more difficult.
And they are succeeding. Earlier this month, the House Ways and Means Committee passed a bill that would prohibit the IRS from developing software that would allow Americans to file their taxes for free.
You read that right. Congress is getting ready to pass a law -- the deceptively named “Taxpayer First Act” -- that would all but require taxpayers to use private companies when they file their taxes.
“The IRS’ job should be to make tax filing as easy as possible,” Georgia State economics professor Garth Heutel wrote for the public affairs website The Conversation. “But it is stymied by Congress’ refusal to allow reasonable improvements to the overly complicated tax filing system it designed.”
For some inexplicable reason, the issue has bipartisan support. Democratic Congressman John Lewis of Georgia is a sponsor of the Taxpayer First Act, and Grover Norquist of the conservative, anti-tax Americans for Tax Reform is a fan. (As Heutel notes, even one of the Americans For Tax Reform’s heroes, Ronald Reagan, advocated for return-free filing.) The Taxpayer First Act is a sprawling piece of legislation, of which the free-tax-filing ban is only a small part. It is possible to support the overall reform of the IRS without helping to line the pockets of a private industry.
Meanwhile, a bill filed by U.S. Sen. Elizabeth Warren that would make it illegal for the IRS to enter into such sweetheart deals is going nowhere in the Republican-controlled Senate. Some of that can likely be attributed to the Republicans’ desire to keep in check the ambitions and successes of a Democratic presidential candidate. But they are costing average taxpayers billions of dollars to do so. Warren’s proposal should get a full hearing.
And at the very least, Congress should reject the notion of forcing Americans to pay private companies for the privilege of paying their taxes, and develop the tools to help them do it easily, and for free.