More Fun with Taxes

Zach Luck

Imagine you are in charge of an enterprise that has to process over 140 million forms each year.  Each form, on paper, costs about $2.87 to process.  Wait, you say, it is the 21st century and computers might not be a passing fad — shouldn’t there be a way to process the form electronically at some lower cost?  Very astute.  It turns out that there is, and it will cost you about 35 cents to process each electronic version.

Obviously, you would decide that it should be entirely free to mail in the forms on paper and cost money to submit electronically, right?  (Oh, with an important exception that turning in the form electronically must be free for anyone who makes less than around $58,000 a year.)

Would you use your website to distribute, for free, forms which can be turned in by mail, but offer no method on your website for turning in the same forms electronically? People who want to send you an electronic form can use third-party services (some of which might be free, and most of which will use the opportunity to advertise additional products to a captive audience).

Ok, maybe this is not what you’d do.  But it is what the IRS does each year when it faces this seemingly obvious choice.

So why doesn’t the IRS make it free and easy for everyone to file from their website?  Why do they instead link out to private firms, waiting with offers for costly upsells?  The simple answer is effective lobbying by the tax preparation industry.  Consumers pay tax preparation companies billions of dollars each year to do something which the government could save money by helping us do ourselves.

The closest thing to an online tax return the IRS offers is a link to “Free Fillable Forms” which provides as little help filling out your taxes as possible (including, for example, not filling in this year’s standard deduction for you) combined with seemingly endless warnings to scare away consumers.

Tax preparation industry lobbying probably also prevents the IRS from moving towards actually filling out most of our tax returns for us.  That said, the promised land of self-filling tax returns seems particularly far away if we can’t even get government to provide an easily accessible online filing system.

The company that makes Turbo Tax  argues that government faces a conflict of interest if it assists individuals in preparing their taxes with helpful online forms.  While the “big brother” fear the IRS will “watch your keystrokes” might seem scary, one need only remember that the government would not require anyone to fill anything out on their website.  Instead, the IRS should simply offer a freely-available bureaucracy-built competitor to private companies.  But we’ve already learned that the public and the private sector, must neverever compete.

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