May 19, 2023 - 9:00 pm
All the new funding that congressional Democrats and President Joe Biden showered on the IRS has the tax agency thinking big. That should worry taxpayers.
The Wall Street Journal reported this week that IRS officials hope to get into the tax preparation business, in direct competition with TurboTax and firms such as H&R Block. The goal is to create a “Direct File” system on the agency’s website that would be free to those who use it.
“This is a service that I think the government ought to provide,” Kitty Richards, a progressive tax expert and former Treasury official, told the Journal. “It’s problematic that we instead provide it through these private corporations that prey on people and extract profits from taxpayers that are just fulfilling that civic duty.”
Yet most of these private outfits already do simple tax returns for free. It’s also worth noting that the IRS has a dismal record of customer service, particularly when taxpayers attempt to reach the agency by phone. And those lucky enough to get through and reach a live human being often get conflicting or inaccurate information, according to watchdog groups.
Besides, do we really want a system in which the IRS automatically completes taxpayer forms and then later serves as a potential auditor?
In fact, as Reason’s Joe Lancaster points out, the agency for 20 years has offered Free File, which lets taxpayers use existing private software to file online at no charge. Yet only about 3 percent of eligible taxpayers use the system. That doesn’t bode well for the success of a more robust IRS tax preparation service.
If those such as Ms. Richards want to put for-profit tax preparers out of business, there’s an easy way to start: Simplify the tax code. Yet that’s not likely to be palatable to either progressive Democrats or H&R Block and the rest, all of whom benefit from a vast tax apparatus that has evolved into more a force for social engineering and behavioral modification than a means of collecting enough revenue to run the government.
The Trump tax reform took a small step toward simplification by raising the standard deduction high enough that most filers no longer itemize. But the tax laws remain maddeningly complex for even experts in the field. “As a result,” Mr. Lancaster notes, “fully complying with the rules while taking advantage of every credit and deduction one is eligible for tends to require paying an expert.”
The IRS has enough problems without getting directly into the tax preparation business. And those worried about lower- and middle-income taxpayers experiencing difficulty navigating the system in order to do their “civic duty” have a solution right in front of them: Make it less complicated for them to do so.