Imagine filing your income taxes in five minutes — and for free.
You'd open up a pre-filled return, see what the government thinks you
owe, make any needed changes and be done. The miserable annual IRS
It's already a reality in Denmark, Sweden and Spain.
The government-prepared return would estimate your taxes using
information your employer and bank already send it. Advocates say tens
of millions of taxpayers could use such a system each year, saving them a
collective $2 billion and 225 million hours in prep costs and time,
according to one estimate.
The idea, known as "return-free filing," would be a voluntary
alternative to hiring a tax preparer or using commercial tax software.
The concept has been around for decades and has been endorsed by both President Ronald Reagan and a campaigning President Obama.
"This is not some pie-in-the-sky that's never been done before," said
William Gale, co-director of the Urban-Brookings Tax Policy Center.
"It's doable, feasible, implementable, and at a relatively low cost."
So why hasn't it become a reality?
Well, for one thing, it doesn't help that it's been opposed for years
by the company behind the most popular consumer tax software — Intuit,
maker of TurboTax. Conservative tax activist Grover Norquist and an
influential computer industry group also have fought return-free filing.
Intuit has spent about
$11.5 million on federal lobbying in the past five years — more than
Apple or Amazon. Although the lobbying spans a range of issues,
Intuit's disclosures pointedly note that the company "opposes IRS government tax preparation." ...
Proponents of return-free filing say Intuit and other critics are
exaggerating the risks of government involvement. No one would be forced
to accept the IRS accounting of their taxes, they say, so there's
little to fear. Other advocates point out that the IRS would be doing essentially the
same work it does now. The agency would simply share its tax
calculation before a taxpayer files rather than afterward when it checks
"When you make an appointment for a car to get serviced, the service
history is all there. Since the IRS already has all that info anyway,
it's not a big challenge to put it in a format where we could see it,"
said Paul Caron, a tax
professor at University of Cincinnati College of Law. "For a big slice
of the population, that's 100 percent of what's on their tax return."
Taxpayers would have three options when they receive a pre-filled
return: accept it as is; make adjustments, say to filing status or
income; or reject it and file a return by other means. "I've been shocked as a tax person and citizen that this hasn't happened by now," Caron said.
Some conservative activists have sided with Intuit. In 2005, Norquist testified
before the President's Advisory Panel on Federal Tax Reform arguing
against return-free filing. The next year, Norquist and others wrote in
a letter to
President Bush that getting an official-looking "bill" from the IRS
could be "extremely intimidating, particularly for seniors, low-income
and non-English speaking citizens." ...
In separate reports, the CCIA and a think tank that Intuit helps sponsor argue
that potential costs outweigh return-free filing's benefits. Among
other things, the reports say that not many taxpayers are likely to use
return-free, that new data reporting requirements could raise costs for
employers, and that taxpayers could face new privacy and security risks. ...
James Maule, a professor at Villanova University School of Law, said the
average taxpayer probably wouldn't scrutinize a pre-filled return for
accuracy or potential credits. "Some people might get this thing that
says this is your tax bill and just pay it, like with property tax
bills," said Maule.
So far, the only true test case for return-free filing in the U.S. has been in Intuit's home state.
In 2005, California launched a pilot program called ReadyReturn. As
it fought against the program over the next five years, Intuit spent
more than $3 million on overall lobbying and political campaigns in the
state, according to Dennis J. Ventry Jr., a professor at UC Davis School of Law who specializes in tax policy and legal ethics. ...
Joseph Bankman, a Stanford Law School professor who helped design
ReadyReturn, says he spent close to $30,000 of his own money to hire a
lobbyist to defend the program in the legislature. Intuit made political
contributions to scores of legislative candidates, Bankman said, and
gave $1 million in 2006 to a group backing a ReadyReturn opponent for
ReadyReturn survived, but with essentially no marketing budget it is
not widely known. Fewer than 90,000 California taxpayers used it last
year – although those who do use it seem to be happy. Ninety-eight
percent of users who filled out a survey said they would use it again. The state's tax agency has also praised ReadyReturns, saying they are cheaper to process than paper returns.
Bankman thinks national return-free filing could make many others
happy, too. "We'd have tens of millions of taxpayers," he said, "no
longer find April 15 a day of frustration and anxiety."