The Strange and Successful Campaign to Make Taxes More Taxing
Filing your taxes online can look like the ultimate series of trick questions: First you fill in a government-mandated form with numbers the government already knows, then you go to somebody else’s site to send those details to the government and either pay what you owe or collect a refund on your free loan of an overpayment.
Tax prep doesn’t have to be so difficult. But corporate lobbying at the state and federal levels, ideological hostility in Washington, and deeper technical hangups all combine to protect today’s system — and to generate the fees that many of us pay for apps from Intuit, H&R Block, and others.
And the thing is, usage numbers suggest we don’t even mind.
Alternative minimum tax prep
What are the alternatives? In one scenario, you’d log into a government site and see the income numbers that today arrive on separate pieces of paper. These are the forms that employers and banks and other people who pay you each send separately to the feds anyway. This option could be confined to taxpayers not itemizing deductions — which is 70 percent in 2010 — or you could also plug in relevant deductions and credits before seeing the totals.
This idea goes by the term “return-free” filing, and it’s not new. President Reagan unsuccessfully advocated it in 1985 in a tax-simplification push, and President Obama campaigned on the issue in 2008. Other countries do it, and Californians with simple state-tax situations can use ReadyReturn.
In a less ambitious change from the current setup in which you collect the data and send it to the feds yourself, you wouldn’t have any numbers presented to you on an official site, but you could still file and pay at a tax agency’s site instead of handing your data to a third-party tax preparer. That’s an option in many states — see, for instance, California’s CalFile, Kansas’ WebFile, Massachusetts’ WebFile and Utah’s Taxpayer Access Point.
You won’t be surprised to learn that the leading vendor of tax-prep software, Intuit, doesn’t like either scenario and has lobbied consistently and successfully for “Free File.” In that program, started in 2003 with the IRS, tax-prep companies offer service for free to people below an income level. They’re subsidized by the fees paid by everybody else who opts out of the no-charge option, the “free fillable forms” that do basic math but little else.
(If you’re only just now doing your taxes and had an adjusted gross income below $58,000 last year, you must start your Free File quest at the IRS’s Free File portal, not a tax preparer’s site.)
As Pro Publica recounted last year and in an update Monday, Intuit has worked hard to keep things this way. In 2013, the San Diego firm had $2.62 million in lobbying expenses, while it’s made $372,600 in campaign contributions so far in the 2014 election cycle.
Keeping the money flowing
Pennsylvania, Indiana, Iowa, and Virginia, among others, have ditched direct-filing systems and ceded online tax prep to Free File. At the federal level, a bill introduced by Reps. Peter Roskam (R-Ill.) and Ron Kind (D-Wisc.) would do the same thing, making the Free File system permanent.
“We think Free File is the better alternative for taxpayers,” wrote Intuit communications vice president Julie Miller. “We exist to make tax preparation and compliance easy, giving people a simple and accurate way to file their taxes and get their own money back.”