As millions of Americans pay to use software like TurboTax or a tax professional fill out their forms, many are surely wondering: Isn’t there an easier way? There is, or at least there could be. Many industrialized nations don’t do taxes this way. I’m from the United Kingdom and had never even seen a tax return until I moved to the United States at 22, because in the U.K. most people don’t have to file returns — the government calculates your liability or refund and sends you your check or your bill (unless you’re self-employed).
A similar idea has been proposed in the U.S., known as “simple filing” or “return-free filing.” Under this proposal, the IRS would take the information on your W2, which it receives directly from your employer, calculate what you owe the government or what the government owes you, and mail you a form with its calculation. You could then agree with their number, sign it and send it back, or dispute the IRS’ calculation and do your taxes the old fashioned way. Millions of Americans, particularly those with no dependents and only one job, would have to do “just a few minutes of work at tax time every year” — let alone saving money on the cost of software like TurboTax. According to a recent staff report from Sen. Elizabeth Warren, D-Mass., a proposal should have been well in the works already: “Congress required the IRS to develop procedures for a system so that taxpayers could file return-free no later than 2008.”
But as Sunlight and others have reported in the past, tax preparers have spent millions lobbying against this change. In the past five years, TurboTax’s parent company Intuit has spent over $13 million on lobbying. From 2010 to 2013, House and Senate lobbying disclosures on behalf of Intuit featuring the phrase “simple return” total $1.9 million spent.
To be clear, tax preparers like Intuit aren’t the only ones opposing simple filing. Anti-tax conservatives like Grover Norquist of Americans for Tax Reform also warn that it could pose a “conflict of interest” for the government to tell you how much you owe, given that it’s in its interest to maximize revenue and not your refund. After the introduction of a return-free filing bill in the Senate in 2011, Norquist wrote a letter to the bill’s sponsors arguing that the “clear goal of this measure is to raise taxes in a way that leaves politicians with clean hands.”
Since we last wrote about this in 2013, none of Intuit’s lobbying disclosures have included the terms “simple filing” or “simple return.” But they have been lobbying on another program that reduces the risk of competition from the government: the IRS Free File program.
This program provides free online tax software for Americans making less than $62,000 through links to various companies’ software on the IRS website, including TurboTax and H&R Block. The companies are represented by the Free File Alliance, a 501(c)(4) coalition. Executive Director Tim Hugo is also a member of the Virginia House of Delegates. (Of note: In 2010, Virginia replaced its universally free tax-filing service, iFile, with Virginia Free File, which is only free for some taxpayers. The change meant 90,000 taxpayers could no longer access free tax filing, and was described by opponents as intended to turn the system over to the private sector; Intuit gave thousands to Virginia politicians, too. Hugo abstained from the Virginia House vote on the bill.)
There is some pending legislation in Congress related to this. This week, Warren introduced the Tax Filing Simplification Act of 2016, which would require the IRS to create its own online tax filing software by 2018. Conversely, a bill recently introduced by Reps. Ron Kind, D-Wis., and Pete Roskam, R-Ill., would make permanent the temporary agreement between the tax software companies and the IRS that makes the IRS Free File program possible. As Roll Call noted, Kind and Roskam have been major recipients of money from tax preparers: Intuit’s PAC and their employees gave $17,300 and $10,350 respectively to Roskam and Kind in 2014, and they were the top recipients from Intuit’s PAC.
You might wonder why these companies would be so eager to push a free alternative to their paid services, but there’s another benefit of this agreement: The IRS promised not to create its own free tax preparation software. Warren’s proposed bill would prevent the IRS from making these sorts of agreements. According to The Wall Street Journal, only 2.8 million returns were filed through the Free File program in 2014, even though more than 100 million returns were eligible. (The terms of the Free File agreement state that altogether the companies must offer services covering 70 percent of taxpayers.) The report also pointed out that “some providers offer similar-sounding but different ‘free’ offers, which can come with additional fees,” and that providers can still charge for some state tax filings. They can also make it difficult to find the free services if users go to their site rather than the IRS Free File page, as one Forbes writer discovered. According to Warren’s report, the program has become more complicated and less universal over time: “In 2005, multiple companies chose to make their programs free to all taxpayers. Yet some members of the Free File Alliance were furious that others had offered universal free filing services—and pressed for changes in the next Free File agreement.”
Nothing is certain except death and taxes, as goes the saying, but we might want to add lobbying to that.