2-node-supercomputer.net 2020-06-21

Taxes, taxes, taxes

The most frustrating part of tax season is that you must do all the work of preparing your tax return, and then use some third-party company to actually file your return online. In this context, "use" can very well mean "pay", and for many state taxes, it does mean "pay".

Since the tax code is so complicated, you may think this money is well-spent, right? Well, no. Turns out the tax-prep industry has been working diligently towards making filing taxes on your own even harder. Need. proof? Lobbying.

In Pennsylvania I used the state-provided e-file option, which worked great. In California, that doesn't look like an option. It may be possible to obtain the required forms, print them, and send them in. That's my plan.

However, the history of taxfiling in California shows that there is a better way. California's Ready Return program was extremely successful for while it lasted. For that program, qualifying residents received their return already filled-out by the government, and all they had to do is check that there were no mistakes.

Of course, there were limitations, as only the simple tax returns qualified for the program. However, that's a few million people at least in California alone. Some expansion of the program shouldn't be too hard, saving most tax payers some dollars. For those non-qualifying returns, the current system is apparently adequate.

Most advanced countries in Europe already do some form of return-free filing. Surely, America can apply the same solutions?

Others have tried to take on the challenge themselves, Joe Bankman has spent $30,000 of his money on lobbying. Did it help? A little. However, tax-preparers pockets are deeper. We all pay the price.

What are the downsides? Several have been put forward, none very convincing, as I will show now.

First, it is said the US tax code is so much more complex than European counterparts that return-free filing would be much harder to implement. Private companies, or so assume the argument must go, are able to solve that problem better than the government. I would argue that this would merely be a reason to simplify the tax code, and I would like to see some sort of indication (not even asking for a hard proof!) that the US tax code really is more complex.

Second, it is argued that the tax reporting burden will shift from the employee to the employer, and this creates a particularly large additional burden on small businesses. Maybe this is true, maybe not. What is true, is that businesses already need to do some kind of tax reporting by, e.g., issuing W-2's. How does sending the W-2's to the government instead create a large additional burden?

Third, the argument is made that the IRS would need additional resources to provide a return-free filing program. I assume this is likely correct: the IRS would indeed need additional money to fund such a program. Here is the crux, though. Is that more money than tax payers are paying the tax-prep industry? Anyone know the answer?

Fourth, it is argued that Americans will be shy to fix mistakes in a government-filled form. Really? And how is the current situation any better? Also, I trust Americans to do the right thing and complain.

Fifth, the argument is that California's Ready Return program was popular, but only with a very limited sample of tax payers, and the usage has been declining. Ah, so where is the analysis why? Maybe because of tax-prepper's lobbying?

Finally, there was an argument that Ready Return was cheaper for the California tax board not because of return-free filing, but because it was electronic. Alright, so we should file electronically. I'm in. Not an argument for or against return-free filing.

Anyway, my analysis here is likely somewhat erratic and incomplete. However, it strikes me as odd that there is so little discussion about this. Who's affected?

Some questions I'd still like answered: How much do tax payers pay tax-prep companies? How much money do businesses spend preparing taxes? How much time is spent preparing taxes? What is the budget of the IRS and the state agencies?