This raises an important question: why should taxpayers navigate the tedious and expensive system of filing tax returns?
“Easy return” case
In 1985, President Ronald Reagan promised to introduce a “non-refundable” tax system in which half of all Americans would never file a tax return again. Under this structure, taxpayers with simple returns will automatically receive a refund or a letter detailing any tax due. Taxpayers with more complex declarations will use the current system.
In 2006, President Barack Obama’s chief economist, Austen Gulbsby, proposed a “simple declaration” in which taxpayers would receive completed tax forms to verify or correct. Gulbsby estimates that his system will save taxpayers more than $ 2 billion a year in tax preparation fees.
Although these two proposals have not been implemented, they illustrate what we know: no one likes to fill out tax forms.
So why should we?
An expert on the U.S. tax system, Beverly Moran, an honorary professor of law at Vanderbilt University, sees America’s costly and time-consuming tax reporting system due to its relationship with the commercial tax training industry, which is lobbying Congress to maintain the status quo.
Expensive and time-consuming system
Non-return feed is not complex. At least 30 countries allow non-refundable applications, including Denmark, Sweden, Spain, and the United Kingdom.
In addition, 95% of American taxpayers receive at least one of more than 30 types of information declarations that allow the government to know their exact income. These information declarations give the government everything it needs to complete most taxpayer declarations.
The U.S. tax system is ten times more expensive than the tax systems in 36 other developed economies. But those costs are disappearing in an irreversible procedure, as are the 2.6 billion hours that Americans spend each year preparing their tax returns.
Free tax training
Congress instructed the IRS to provide low-income taxpayers with free tax training about two decades ago. The agency responded in 2002 with Free File, a public-private partnership between the government and the tax sector. Under the agreement, the IRS agreed not to compete with the private sector in the free tax training market.
In 2007, the House of Representatives rejected a law providing free preparation of state taxes for all taxpayers. And in 2019, Congress tried to legally ban the IRS from ever providing free online tax filing services.
Only public resonance broke the situation.
The public part of the Free File consists of the IRS, which directs taxpayers to commercial tax filing websites. Some consist of those commercial structures that distract taxpayers from expensive alternatives.
According to the Treasury Inspector General, who oversees the IRS, private partners use computer code to hide free websites and redirect unsuspecting taxpayers to paid sites.
“So, of the more than 100 million taxpayers eligible for free aid, 35% end up paying for a tax return, and 60% never visit free websites. Instead of 70% of Americans receiving free tax training, commercial companies have reduced that percentage to 3%,” said Beverly Moran.
Tax savings and tax evasion
“You may be suggesting that there are significant political justifications for avoiding private sector empowerment. Think for yourself about these arguments,” says the expert.
One of the arguments of commercial tax authorities is that taxpayers will lose valuable tax savings if they rely on free government training.
“In fact, government software will reflect the same laws as paid compilers, with the same access to tax deductions or loans. In addition, tax agents such as H&R Block promise to pay all taxes and interest incurred as a result of a failed audit. As a result, these services have every reason to take a conservative, pro-government tax stance,” said the expert.
The second argument is that tax returns prepared by the government encourage tax evasion.
“In a non-refundable system, the government discloses its knowledge of the taxpayer’s income before the taxpayer files,” says Beverly Moran. “Thus, according to the argument, the taxpayer knows whether the government has missed something, and he has reason to leave the mistake in force.”
But taxpayers already know what forms of information the government has because they are getting duplicates. The incentive to lie does not increase because the taxpayer avoids weeks of preparation for paying taxes.
Support opponents of taxes
“Finally, there is the anti-tax argument in favor of burdensome tax training: make tax training unpleasant to inflame anti-tax sentiment,” said Beverly Moran.
In the past, Republicans have opposed high taxes. But after decades of tax cuts, Americans are no longer subject to this argument.
According to this argument, heavy tax training helps maintain a high level of anti-tax fever. And it fuels public hatred of government and the tax system.
Unfortunately, the desire of the anti-tax contingent to force Americans to spend time and money on tax returns coincides with the desire of the tax collection industry to receive billions of dollars in fees.
Tax preparation companies are lobbying Congress to keep tax preparation expensive and complex.
Intuit, the maker of TurboTax, a tax preparation software, called state tax preparation a threat to its business model.
One example is the deduction from income tax, a government program for low-income people. Credit is so complex that 20% of eligible people never apply, thus losing thousands of dollars in savings.
“If the government prepared tax returns for everyone, these 20% would receive state support. However, Intuit lobbied legislators to make credit more difficult, thereby attracting more taxpayers to paid training services,” said the expert.
In other words, the tax training industry seems to complicate the system, as the potential cost of lost profits is enormous.
According to Beverly Moran, only public resonance can change the system, an expert on the U.S. tax system.
