The IRS Already Has Our Data So Why Do We Still File Taxes?

In 1985, President Ronald Reagan promised a "return-free" tax system in which half of all Americans would never fill out a tax return again. Under the framework, taxpayers with simple returns would automatically receive a refund or a letter detailing any tax owed. Taxpayers with more complicated returns would use the system in place today.

In 2006, President Barack Obama's chief economist, Austan Goolsbee, suggested a "simple return," in which taxpayers would receive already completed tax forms for their review or correction. Goolsbee estimated his system would save taxpayers more than$2 billion a year in tax preparation fees.

Though never implemented, the two proposals illustrate what we all know:No one enjoys filling out tax forms.

So why do we have to?

As anexpert on the U.S. tax system, I see America's costly and time-consuming tax reporting system as a consequence of its relationship with the commercial tax preparation industry, which lobbies Congress to maintain the status quo.

Return-free filing is not difficult.At least 36 countries permit return-free filing, including Denmark, Sweden, Spain and the United Kingdom.

Furthermore, 95 percent of American taxpayers receive at least one of more than30 types of information returnsthat let the government know their exact income. These information returns give the government everything it needs tofill out most taxpayers' returns.

The U.S. systemis 10 times more expensivethan tax systems in 36 other countries with robust economies.But those costs vanish in a return-free system, as would the2.6 billion hours Americans spend ontax preparationeach year.

Maybe you're wondering whether Congress is just behind the times, unaware that it can release us from tax preparation? Not true.

About two decades ago, Congress directed the IRS to provide low-income taxpayers with free tax preparation. The agency responded in 2002 with "Free File," a public-private partnership between the government and the tax-preparation industry. As part of the deal, the IRS agreed not to compete with the private sector in the free tax preparation market.

In 2007, the House of Representatives rejected legislation to providefree government tax preparationfor all taxpayers. And in 2019, Congress tried tolegally bar the IRSfrom ever providing free online tax preparation services.

只有一个public outcry turned the tide.

The public part of Free File consists of the IRS herding taxpayers to commercial tax-preparation websites. The private part consists of those commercial entitiesdiverting taxpayerstoward costly alternatives.

According to the Treasury Inspector General for Tax Administration, which oversees IRS activities, private partners use computer code to我们隐藏的自由bsitesand take unsuspecting taxpayers to paid sites.

Should a taxpayer discover a free preparation alternative, the private preparersimpose various restrictionssuch as income or the use of various forms as an excuse to kick taxpayers back to paid preparation.

Consequently, of the more than 100 million taxpayers eligible for free help, 35 percent end up paying for tax preparation and60 percent never even visit the free websites. Instead of 70 percent of Americans receiving free tax preparation, commercialcompanies whittled that percentage down to 3 percent.

Perhaps you are guessing that there are valid policy justifications for avoiding government and empowering the private sector. Judge those arguments yourself. One argument from commercial tax preparers is that taxpayers will miss out on valuable tax savings if they rely on free government preparation.

In fact, the government software would reflect the same laws used by the paid preparers with the same access to tax saving deductions or credits. Further, tax preparers like H&R Block promise to payall taxes and interest resulting from a failed audit. As a result, these services have every incentive to take conservative, pro-government tax positions.

A second argument is that government-prepared tax returns encourage tax evasion. In a no-return system, thegovernment reveals its knowledge of the taxpayer's incomebefore the taxpayer files. Thus, the argument goes, the taxpayer knows if the government has missed something and has reason to let the mistake stand.

But taxpayers already know what information forms the government has because they receive duplicates of those forms. The incentive to lie does not increase because the taxpayer avoids weeks of tax preparation.

Finally, there is the anti-tax argument for onerous tax preparation: Keep tax preparation unpleasant to fuel anti-tax sentiment.

In the past, Republicans argued against high taxes. But after decades of tax cuts, Americans areno longer swayed by that argument. Exasperating tax preparation, according to this argument, helps keep the anti-tax fever high. And thatfuels public hate for governmentand the tax system.

Unfortunately, the anti-tax contingent's desire to force Americans to spend time and money on tax preparation dovetails with the tax preparation industry'sdesire to collect billionsof dollars in fees.

Tax preparation companies lobby Congressto keep tax preparation costly and complicated. Indeed, Intuit, maker of the tax preparation software TurboTax, has listed government tax preparation as athreat to its business model. ProPublica reported in 2019 on thecompany's 20-year fightto prevent the government from making tax filing simple and free for most citizens.

One example of that complexity is theearned income tax credit, a government program for low-income people. The credit is so complicated that20 percent of the people who are eligible never file, thus missing out on thousands of dollars in savings.

If the government prepared everyone's tax returns, I believe more of that 20 percent would receive government support. Nonetheless, H&R Blockreportedlylobbied lawmakersto make the credit more complicated, therebydriving more taxpayers to paid preparation services.

I believe only public outcry can change the system.

Beverly Moran is Professor Emerita of law at Vanderbilt University where she teaches about federal income taxation.

This article is republished fromThe Conversationunder a Creative Commons license. You can find the original article here. It is an updated version of an article originally published on March 22, 2021.

本文纠正澄清如何报税aration companies have lobbied Congress.