Breaking News Emails
This year, what if you could do your taxes for free, and fast? You could, but TurboTax and H&R Block have spent big bucks lobbying to make sure that never happens.
Because if doing taxes was less annoying, you wouldn't need to pay someone to do it for you.
Breaking News Emails
For years, tax prep companies have pushed back against "return-free filing" legislation that would have allowed the IRS to greatly simplify taxes for over 60 million people by offering pre-populated returns.
In 2016 alone, Intuit, the makers of TurboTax, spent $2 million on lobbying, ProPublica reports. H&R Block spent $3 million, some of it on the same efforts.
They were focused on getting the "Free File Act of 2016," which had two implications:
One, the government would continue and for forever offer free online tax filing to lower- and middle-income families in a public-private partnership with tax prep companies.
Sounds great, but hardly anyone has heard of this program, acknowledged Tim Hugo, executive director of the "Free File Alliance," a consortium of 13 private tax prep companies including Inuit and H&R Block. And that's because the IRS advertising budget is "$0" — so only a relatively small number of people take advantage of the program.
Two — and this is key — the bill would prevent the government from offering its own free alternative to taxpayers.
So, by offering free software used by only a few people, the tax prep companies can maintain the current difficult system and thus the need for their products. The Free File Act did not pass but the Free File system remains, and "return-free filing" is nowhere to be seen.
Why Are Taxes So Complicated Anyway?
For many taxpayers, the government already knows your income because your employer sends the IRS your W2's and 1099's. Instead of making you do all the leg work, calculating, writing and erasing, and scrambling to get to the post office on time, the IRS could just send you a prefilled tax form.
For people who don't take complicated deductions, this "return-free" system could turn a hated annual chore into a simple once-over and mail out.
"We envision a system where more than half of us would not even have to fill out a return," said one statesman. "We call it the return-free system, and it would be totally voluntary. If you decided to participate, you would automatically receive your refund or a letter explaining any additional tax you owe. Should you disagree with this figure, you would be free to fill out your taxes using the regular form. We believe most Americans would go from the long form or the short form to no form."
"Comparing the distance between the present system and our proposal is like comparing the distance between a Model T and the space shuttle. And I should know — I've seen both."
That was President Ronald Reagan, in 1985.
Congress passed a law in 1998 requiring the Treasury to develop such a system by 2008. A decade later, we're still waiting.
The average American currently spends 13 hours doing their taxes and paying tax prep companies $200, according to estimates by the office of Senator Elizabeth Warren, who has tried to root out "industry capture of the filing process and efforts to block IRS reforms."
A Simpler Plan
Last year, Warren proposed the "Tax Filing Simplification Act of 2016" that would have directed the IRS to launch the return-free program.
The bill was endorsed by law professors and economists, and cosponsored by Senators Bernie Sanders, Sheldon Whitehouse, Tom Udall, Jeanne Shaheen, Al Franken, Tammy Baldwin, and Edward J. Markey.
The private tax prep industry lobbied against Warren's bill. They would rather people keep using Free File — which was used by only 2.6 million people last year — instead of extending pre-filled forms to as many as 63 million American taxpayers. Warren's bill didn't make it out of committee.
The Free File Alliance argued the Tax Filing Simplification Act was anything but simple. They said it would create a "tremendous and potentially harmful conflict of interest for the American people by enshrining roles of tax preparer, tax collector, tax auditor, and tax enforcer together in one entity."
Intuit's defense of the status quo essentially equates doing your taxes with eating your broccoli: The company said in a press release that preparing your own taxes is a "financial checkup" that forces you to ask "tough questions" like whether you're saving enough for retirement or taking advantage of career-advancing educational opportunities.
Reached for comment, Intuit spokeswoman Diane Carlini said that the proposed government program "minimizes the taxpayers’ engagement in the process of their own compliance" and "does not constitute real simplification of the tax code."
H&R Block raised the specter of taxpayers missing out on valuable tax savings.
"The government will not know exactly how much a taxpayer has paid over the year for child care, medical expenses, or a variety of other potential deductions and credits," spokesman Gene King told NBC News. "A pre-populated form won’t prompt taxpayers for these deeper considerations."
The Bottom Line
The high-minded rhetoric sounds nice.
Intuit's 2012 SEC filing was a bit more plainspoken about the potential outcome:
"The risk of federal and state taxing authorities developing software or other systems to facilitate tax returns preparation and electronic filing at no charge to taxpayers... may cause us to lose customers and revenue," it said.