Tax-prep software vendors look for a lock-in
It is no exaggeration to say that I hate the tax code with the fire of a thousand suns.
Its complexity imposes hours of unpaid work on any citizen with a moderately complex financial situation. Its varying treatment of different kinds of income distorts the economy -- except when small-bore credits and deductions, like the "Making Work Pay" credit I didn't know I was getting until a few days ago, go unnoticed by people they're supposed to motivate. Documenting and processing these fine-grained provisions monopolizes the time of Internal Revenue Service employees who might prefer directing their talents elsewhere. And the opportunity to persuade Congress to make further tweaks keeps armies of lobbyists employed on K Street.
Regular readers should be familiar with this airing of grievances. See, for instance, my rant of last year, which wasn't too different from the 2008 version, which itself owed much to the 2007 edition.
This year's review of H&R Block's H&R Block At Home Online and Intuit's TurboTax Online follows that pattern. (I passed on a third site, 2nd Story Software's TaxAct, after getting bogged down in its fussy interface -- it took six pages to collect the information on a W-2 -- and becoming enraged by its inability to accept numbers pasted into its forms, a "feature" that ranks somewhere between illogical and sadistic.)
But today's column also features a new complaint: lobbying by tax-prep software developers -- in particular, Intuit -- to stop governments from offering their own, free tax-prep services. For example, that Mountain View, Calif., company has spent years pushing California to scrap its ReadyReturn system.
Intuit argues that government-run tax-prep represents a conflict of interest and will lead citizens to pay more than required. Spokeswoman Julie Miller wrote that "a system where the gov't sends you a bill -- no matter how simple your tax return is -- isn't going to be accurate. ... What about the everyday things in your life that the government doesn't know that determine the size of your refund?"
To me, that argues for letting the marketplace settle things. If TurboTax works so well, it should easily win business from customers dissatisfied with government-run services. Instead, Intuit wants to sweep the market of competition.
At the federal level, you can expect vigorous opposition from Intuit and its ilk to proposals like the Wyden-Gregg tax-reform bill my colleague Ezra Klein outlined earlier this week. That bill would prune the tax code of numerous deductions and credits, then give taxpayers the option of having the IRS send completed forms for them to review.
(You may recall that President Obama included that last item among his campaign pledges. It's since been
ignored left out of the administration's talking points; a Treasury Department spokeswoman would write only that the administration "supports the principle of tax code simplification" and that pre-completed tax returns were "a potentially valuable idea." Update: The Treasury rep called back to say the White House isn't ignoring this idea and is considering ways to make it happen. I can only hope so.)
At the state level, watch for more efforts to roll back direct filing systems. One such campaign in Virginia seems on the verge of victory. HB 1349, a bill proposed by Del. Kathy J. Byron (R-Lynchburg), would direct the state to run a "free file" system akin to the one supported by the IRS, in which companies offer free tax-prep services to people who don't make too much money.
The text of Byron's bill doesn't spell this out, but a fiscal-impact statement (PDF) states that it would end Virginia's free iFile service. But iFile costs the state almost nothing to run -- if every single iFile user filed electronically through other means, the Department of Taxation would save all of $49,200 in the 2011 fiscal year. But if some switched to paper (the 760 form isn't that hard to fill out), those would cost $1 each to process and could make this a money-losing proposition for the state.
That logic seems to have escaped the House of Delegates, which approved this bill in February, and the Senate, which passed it -- after an earlier rejection -- on Monday. (At least my representatives didn't vote for this nonsense.) Gov. Robert F. McDonnell can now sign the bill if he chooses. I suggest that he not. If you're a Virginia taxpayer, you might want to make the same point.
Enough of my rants. Now it's your turn: Tell me what you think of the tax code, tax-prep software, and attempts by tax-prep vendors to lock in their business.
March 12, 2010; 12:06 PM ET
Categories: Gripes , Policy and politics
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