Twenty-one years ago, Congress gave the IRS a direct order to make your life simpler and less expensive.
Now, having let the agency ignore that directive for two decades, ProPublica reports that lawmakers are on the verge of reversing course and permanently locking in a system that prioritizes the profits of private tax preparers while making the 15th of April an unnecessarily painful day for working people.
The Taxpayer First Act, passed out of the House Ways & Means Committee in early April, would prohibit the IRS from developing its own simple, free online system for filing individual tax returns. Instead, it orders the agency to “continue to work cooperatively with the private sector” in the existing Free File Program, permanently closing the door to progressive legislators’ efforts to cut companies like H&R Block and Intuit out of the process.
Such companies rake in a couple billion dollars a year from their role in the Free File Program, primarily by upselling users on other, fee-based services once the free core service has lured them in. Additionally, some free-file preparers sell their low-income customers high-priced advance loans against the tax returns calculated by their software. Over the past several years, the industry has spent tens of millions of dollars lobbying to protect these profit streams as lawmakers occasionally revisited the never-answered 1998 call to make taxpaying a logical, straightforward exercise.
The law approved by Ways & Means is a broad package with numerous elements consumer advocates like – including a section prohibiting the government from siccing private debt collectors on low-income tax debtors – but it also contains the language that tax preparers have spent time and money pursuing.
This backward step on the mandate to simplify tax preparation is, from a professional lobbyist’s perspective, an impressive upset win. Nearly every factual dynamic of the policy question at issue runs against their clients’ profit interests. The IRS already has all the information most Americans use to fill in a blank tax form every spring. It would be faster, more accurate, and cheaper for the IRS to do your taxes for you than it is to wait for you to file. The $200 that the average tax filer pays someone to prepare and file their returns could get spent on Main Street instead of being siphoned out of the real economy by the financial services industry.
For the seven in 10 taxpayers currently eligible for free-file services, the IRS could easily do all the math itself and give individuals a chance to accept or contest its findings instead of forcing everyone through the convoluted status quo. Tax authorities in many other advanced economies already perform such “return-free” tax assessments. The IRS was supposed to create one for U.S. residents more than a decade ago, pursuant to that 1998 law passed by Newt Gingrich’s Republicans.
But lobbyists have worked feverishly to reframe the once-bipartisan push for a return-free system as some kind of big-government takeover. Rather than embracing a policy idea that makes government more efficient, anti-tax zealots like Grover Norquist attacked the proposal and aided the tax prep industry’s campaign to keep things complicated.
Ideologues like Norquist recognize that it would be bad for their cause if more Americans routinely have a simple, pleasant interactions with their government – especially of the sort that ends with the government sending many of them a check. The new legislation is therefore a boon to conservatives bent on dismantling public services writ large, as it shuts off the prospect of the government demonstrating it can provide good service.
The undue complexity, slowness, and unreliability of the current tax filing system present a juicy target, as they are emblematic of what the Johns Hopkins political scientist Steven Teles calls “kludgeocracy” – a term born out of computer programmers’ jargon for half-assed and inelegant problem-solving techniques that eventually deliver buggy, slow, frustrating end-user experiences but which technically work so everyone can declare victory.
Kludgy tax filing is good for conservatives’ political project because it expands the universe of people who find tax season infuriating. Rich people will probably always experience some amount of sticker shock at seeing the magnitude of their share of society’s tab. But lower-income and working-class taxpayers frequently get some money back from the government when they file. The current kludgy system makes obtaining this dividend as unpleasant as possible, which in turn undermines faith in governing institutions.
Sens. Elizabeth Warren (D-MA) and Bernie Sanders (I-VT) led the most recent major effort to deliver the return-free system that was supposed to be created under the 1998 law. Their 2016 bill would have also prohibited the IRS from including non-compete clauses in the deals it periodically cuts with firms like Intuit to help deliver the current free-file system and ensured all taxpayers – not just those with incomes below $66,000 who are eligible to use the tools currently – could file electronically without having to pay a fee.
Even if the current system weren’t being used as an upselling portal to extract profit from an ostensibly free offering, it would still be failing on other basic metrics. For every 33 taxpayers who are income-eligible for free file, just one actually uses it.
The Free File Association, a trade group built specifically around the industry’s lobbying efforts to preserve the status quo, argues the under-utilization is the government’s fault. FFA head and longtime Virginia state representative Tim Hugo (R) pleaded poverty to ProPublica when asked why so few people seem to know about free-file options, saying “I don’t have an advertising budget.”
It’s unclear how much public awareness could have been raised with the roughly $28 million the industry spend lobbying against change from 1998 to 2013, or the roughly $6 million Intuit and H&R Block spent lobbying on the issue in 2018 alone.