Americans spend a lot of time and money on things that citizens of other First World countries don’t have to worry about. Giving birth here typically costs thousands of dollars, but in Finland, giving birth sets covered new moms back about $60. Whereas U.S. borrowers have to initiate an annual recertification to repay federal student loans through income-based programs, in Australia repayment of government student loans is automatically based on income.
Then there is taxes. Filing taxes is a time-consuming, bureaucratic chore that the Internal Revenue Service estimates will take the typical American 11 hours. Nationwide, that works out to some 6 billion lost hours a year, according to T.R. Reid, author of the 2017 book “A Fine Mess: A Global Quest for a Simpler, Fairer, and More Efficient Tax System.”
The thing is, filing taxes just doesn’t have to be this hard. In 36 countries, the nation’s tax agency sends eligible residents a pre-filled return, and asks them to sign if they agree with the amount that’s indicated is owed or should be credited to them. Japan does this. So do Sweden, the Netherlands, Spain and others. A 2018 German study found that the pre-filled forms raise tax compliance.
So why not us, you ask?
The Biden administration is pushing an $80 billion plan to buttress the IRS that would both improve customer service and increase staffing to audit complicated returns from businesses and the wealthy. It is also seeking authority for the IRS to regulate tax preparers. (Yes, you read that right: The agency currently does not set standards for those paid to assist the public with filing.)
But much more could be done to improve taxpayers’ experience. And, wouldn’t you know, consumer champion Sen. Elizabeth Warren is on the case. Since 2016, the Massachusetts Democrat has introduced legislation that would simplify tax filing. If enacted, many Americans would have the option of the IRS preparing their taxes for them. The IRS would be able to do this because employers and financial services firms already report the relevant information to it, just as filers do. (It’s unlikely the self-employed would benefit from Warren’s plan.)
As you can probably guess (if, say, you’ve spent hours and hours preparing your taxes this spring), Warren’s legislation has gone basically nowhere in previous congressional sessions. One possible reason: Much as the medical industrial complex spends huge sums to stymie effective health-care reform, the tax-preparation industry showers largesse on Capitol Hill. OpenSecrets.org reports that Intuit, the parent company of software giant TurboTax, spent more than $5.7 million on lobbying in 2019 and 2020. H&R Block, the industry’s No. 2 player, spent just shy of $7 million on lobbying in the most recent election cycle.
This advocacy not only blocks reforms that could save taxpayers time — and headaches — but also gets the industry such things as the bipartisan 2019 Taxpayer First Act, which initially contained a provision seemingly prohibiting the IRS from creating its own direct-filing software. Members of Congress from both parties have introduced legislation to prevent the IRS from sending out pre-filled returns.
Some have cited the tax code’s complexity as part of the reason for their opposition to pre-filled tax returns. “The impact of greater taxpayer disengagement from their own personal finances is not an inconsequential consideration as a matter of national economic policy,” Paul Weinstein Jr. of the Progressive Policy Institute, a centrist Democratic think tank, wrote last year. But some arguments against IRS-prepared returns are more of a stretch, such as when former senator Bob Kerrey wrapped himself in the mantle of “financial literacy” to pan the idea. “Calculating how much we owe in taxes is an unpleasant activity, but it is also central to understanding our personal financial situation and planning our financial futures,” he wrote in 2013.
Many Republican politicians have an interest in keeping Americans’ annual appointment with the IRS as miserable as possible — because they believe that will make us more resistant to tax increases. Grover Norquist, founder of the right-wing outfit Americans for Tax Reform, admitted this in 2005: “Moving to a so-called return-free system will reduce people’s understanding of what exactly they’re paying,” he said. “We want people to be aware of what they are paying and how much it costs.”
The result is that Americans endure an arduous tax-filing process that often leaves people anxious, fearful of the IRS and convinced they need professional help to combat it. Talk about a win for the anti-government Republican Party — and, of course, the tax-prep industry.
A Warren spokeswoman told me this week that the senator plans to reintroduce her pre-file bill soon. Let’s wish her well. She needs it — and so do we. There is a better way to file taxes.
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