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A new article out today from ProPublica, about ongoing industry efforts to make sure tax filing remains difficult and profitable. FWF has known the basic facts about this situation for a long time, but there is new info here, at least for me. I was especially intrigued by the first paragraph:

"Here’s how preparing your taxes could work: You sit down, review a prefilled filing from the government. If it’s accurate, you sign it. If it’s not, you fix it or ignore it altogether and prepare your return yourself. It’s your choice. You might not have to pay for an accountant, or fiddle for hours with complex software. It could all be over in minutes."

Filing Taxes Could Be Free and Simple.

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It's true that simplifying the tax code while preserving the taxation level for all people would be a very complicated p... (more)

Shandril (Mar. 23, 2017 @ 9:10a) |

Do you know what happens when you try to move someone's cheese?

user1337 (Mar. 23, 2017 @ 1:30p) |

fedguy (Mar. 23, 2017 @ 4:08p) |

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creditkarma.com is free for 2016 at least...

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You are proposing that the government make HUGE assumptions regarding income and deductions for everyone who has to file (150+ million returns). That requires them to monitor each and every taxpayer as their income, spending levels, and life changes occur. There are way too many variables involved. This would work if you are in a Communist society where "everyone is equal" and paid the same amount and where deductions do not exist.

I am still waiting for a national tax filing course to be a part of the high school curriculum.

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fedguy said:   That requires them to monitor each and every taxpayer as their income, spending levels, and life changes occur. There are way too many variables involved.
  
For a large bulk of taxpayers, the IRS already gets all the information they need to compute their taxes. Wage, interest, brokerage investments, mortgage interest are all already reported to the IRS.  For a large bulk of taxpayers, this is all the IRS needs to know to complete their return. For the rest, they know who they are, and will adjust their IRS return accordingly.

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So who's stopping this?  Because you can be certain the government will need "the industry" to get all those proposed returns prepared even more than individuals...

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Glitch99 said:   So who's stopping this?  Because you can be certain the government will need "the industry" to get all those proposed returns prepared even more than individuals...
  why? " the government" owns the 1040 , they have all the other info as another poster said. Why can't they just auto fill in everything?

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You give people too much credit. Even if it were like that, people would still hire people to "do their taxes." Most people's brains explode when they see numbers.

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The IRS does file returns for nonfilers. They are notoriously error-ridden. I would not want individuals who aren't familiar with the tax system to be subject to the IRS' calculations.

The system just isn't simple enough. For example, married filing jointly is an election, if you don't make the election, you have to file MFS. Which is generally a pretty bad filing status to be in. However, if the IRS filed the return for you, they would be required to file it MFS. Because MFJ results in the tax being assessed against 2 individuals, you have to have consent to do that.

There are also a not insignificant number of erroneous 1099s (and possibly W-2s, but haven't seen any information on that).

The IRS also cannot make elections to take certain credits, such as the EITC. If low income people are told they don't have to file a tax return because the IRS will do it for them, the IRS will, and it would be extremely harmful to those individuals.

Finally, there's the issue of unreported income. The problem here is that you have to decide whether the IRS' prepared tax return can be considered a final and accurate tax return. If the return prepared by the IRS is per se an accurate return, somewhat savvy individuals could earn a significant amount of income from a side business that the IRS would have no information about. Those individuals could accept the IRS' return and legally walk away from any additional tax that would be due had this program not been in place.

If, on the other hand, the IRS' return is a draft that must be reviewed and verified by the taxpayer, it doesn't seem like it's really helping that much. People would still have to have enough knowledge to be able to verify the calculations that the IRS is making. And that would generally either require assistance from a person or software, unless the return is so simple that it doesn't require assistance, but in that case, the individual could prepare the return by him/herself anyway.

I would agree that there needs to be simplification on a large scale. But I don't think it's as easy as simply telling the IRS to pre-fill returns for taxpayers. Just as taxes are complicated, the administration of taxes is complicated. The idea is nice, but given the system we have today, it just doesn't seem to be a viable option.

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Partly, I think the government doesn't want to make filing taxes easy. I'm sure many people overpay taxes because they are unaware or unwilling to learn about the laws that would reduce their burden.

Years ago I heard a story about some CPAs who were convicted of some white-collar crimes. Part of their restitution was to help poor people fill out their tax returns. An analysis of these tax returns showed these people paying less or getting larger refunds than they had in the past. You can save money by investing in the right tax accountant.

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Good points all. There is still a very large bulk of taxpayers where none of these issues arise, and their tax can be auto-completed.

In many election cases, the IRS in their letter to you can ask you to confirm choices, perhaps defaulting to the previous year's choice, while providing completed return samples for both so you can see the numbers.

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mapen said:   
fedguy said:   That requires them to monitor each and every taxpayer as their income, spending levels, and life changes occur. There are way too many variables involved.
  
For a large bulk of taxpayers, the IRS already gets all the information they need to compute their taxes. Wage, interest, brokerage investments, mortgage interest are all already reported to the IRS.  For a large bulk of taxpayers, this is all the IRS needs to know to complete their return. For the rest, they know who they are, and will adjust their IRS return accordingly.

  
Correct. This would be easy to implement for the vast majority of people. As with most things, there's big money involved in lobbying. Can't take out the middleman if the middleman is buying politicians.

http://www.latimes.com/business/hiltzik/la-fi-mh-these-taxprep-c...

Also, this was recently brought up in a reddit thread and someone from Norway chimed in :

Norway here. 25 years ago we did what you suggest, and started sending out prefilled tax returns with all the information the government already had. For everyone with uncomplicated taxes, that meant all you had to do was check that the numbers was accurate, sign the prefilled form and send it in. About 10 years ago they ditched the signature as well. Now you just get a text message to check your numbers online, and change them if they are inaccurate. If everything is ok you don't have to do anything. If you have an uncomplicated economic life and you trust the system, you can just ignore the whole tax thing, everything is automatic.

They are constantly evolving the system, in order to expand what uncomplicated means. They do this both by automating information from ever more sources, as well as simplifying the tax laws.

The government apparently saved billions doing this, and society as a whole certainly benefited from it, since we no longer have to spend time doing unpaid work filling in unneccessary forms.

I can only speculate why the US doesn't do this. You seem to have an industry dedicated to figuring out people's taxes. That's totally unproductive, just simplify the tax laws and the need for this industry vanishes. Complicated deductions might also be holding you back. Incentivizing certain behavior using the tax system can be great, but do it in a way that can be automated. Walking your old neighbors dog for free is nice, but shouldn't give you a tax deduction since no sane government could know that about you. Giving tax deductions for driving an electric car is fine though, as long as the IRS can access a registry over who owns what car and the registry shows which cars are electric. That way the deduction could be completely automated. Taxes do not need to be complicated.

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This would only work for very simple returns. Those returns are generally done by poor people. Those people can already file for free, using any of the major software products.

For everyone else, it cannot work. The IRS knows nothing about your cost basis for capital gains from funds/stocks you bought 10 years ago, nor about the method you choose to use for calculating those gains. It knows nothing about your foreign accounts. It knows nothing about your business expenses. It knows nothing about your non-cash charitable contributions. The list goes on...

What's REALLY needed is an IRS program that lets you input all that stuff. This is how it works in other countries, like Canada. There is no need at all to have to pay some corporation for the program.

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I agree. IRS should send you a bill with the info they have. You reply back with deductions/ things they missed.

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Let the IRS show it's cards first. If the IRS errs in your favor, you just go with it.

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BingBlangBlaow said:   
mapen said:   
fedguy said:   That requires them to monitor each and every taxpayer as their income, spending levels, and life changes occur. There are way too many variables involved.
  
For a large bulk of taxpayers, the IRS already gets all the information they need to compute their taxes. Wage, interest, brokerage investments, mortgage interest are all already reported to the IRS.  For a large bulk of taxpayers, this is all the IRS needs to know to complete their return. For the rest, they know who they are, and will adjust their IRS return accordingly.

  
I can only speculate why the US doesn't do this. You seem to have an industry dedicated to figuring out people's taxes. That's totally unproductive, just simplify the tax laws and the need for this industry vanishes. Complicated deductions might also be holding you back. Incentivizing certain behavior using the tax system can be great, but do it in a way that can be automated. Walking your old neighbors dog for free is nice, but shouldn't give you a tax deduction since no sane government could know that about you. Giving tax deductions for driving an electric car is fine though, as long as the IRS can access a registry over who owns what car and the registry shows which cars are electric. That way the deduction could be completely automated. Taxes do not need to be complicated.

 The tax professional industry isn't close to the primary driving factor of the complication of the tax code, and the extent to which they do contribute to the complexity of the tax code has nothing to do with their lobbying efforts.

The tax code is so complex because of lobbying efforts on behalf of particular industries that receive benefits from various provisions, the government's use of the tax code to further societal goals, and the tax professionals' planning techniques which require that the code have provisions disallowing certain tax planning techniques. The third factor is very unlikely to be fixed with an income tax based system. You simply cannot write a statute that encompasses everything and leaves out all ambiguity, ESPECIALLY a brand new statute.

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If this were true then why doesn't the IRS just tell your employer & interest/dividend payers what to withhold which would equal the exact tax you owe. No tax return required unless you want to declare additional income or deductions.

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I have two main issues with the IRS doing it automatically.

First, knowing the government usual efficiency, it'll be done at a very expensive premium compared to the current industry where many software providers offer different solutions. Government stepping in creates a semi-monopoly which is not good for keeping costs down.

Secondly, this would seem to me to be regressive. Low-income taxpayers already have free filing solutions offered by the IRS. A lot of taxpayers with moderate income and very simple tax situations already have free or nearly free options in the marketplace. They may have to print and mail their returns instead of e-filling but it's very inexpensive. And with simple tax situations, it doesn't take hours to do your taxes especially for the millions not itemizing. For these folks, IRS doing more of the work for them would not save much in time or money. But having the IRS step in for people with more complex returns would be costly and low/moderate-income taxpayers could end up effectively subsidizing those costs. And it may be for nothing since people with complex taxes likely still have to double-check/correct the IRS's number using the same old complex software solutions currently available.

I'd MUCH rather see a simplification of the current tax code than having the IRS itself take on the extra burden of filling taxes for people under the current tax code. Simplifying the tax code would pave the way for easier, faster, and cheaper compliance much more effectively than the IRS stepping in.

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bobbybore said:   If this were true then why doesn't the IRS just tell your employer & interest/dividend payers what to withhold which would equal the exact tax you owe. No tax return required unless you want to declare additional income or deductions.
  Won't work. You can't do accurate witholding in real time, because your tax bracket depends on your entire-year income. The IRS would have to adjust your employer's witholding on a daily basis, as your mutual fund positions change and the stock market rises/falls.
 

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Shandril said:   I have two main issues with the IRS doing it automatically.

First, knowing the government usual efficiency, it'll be done at a very expensive premium compared to the current industry where many software providers offer different solutions. Government stepping in creates a semi-monopoly which is not good for keeping costs down.

Secondly, this would seem to me to be regressive. Low-income taxpayers already have free filing solutions offered by the IRS. A lot of taxpayers with moderate income and very simple tax situations already have free or nearly free options in the marketplace. They may have to print and mail their returns instead of e-filling but it's very inexpensive. And with simple tax situations, it doesn't take hours to do your taxes especially for the millions not itemizing. For these folks, IRS doing more of the work for them would not save much in time or money. But having the IRS step in for people with more complex returns would be costly and low/moderate-income taxpayers could end up effectively subsidizing those costs. And it may be for nothing since people with complex taxes likely still have to double-check/correct the IRS's number using the same old complex software solutions currently available.

I'd MUCH rather see a simplification of the current tax code than having the IRS itself take on the extra burden of filling taxes for people under the current tax code. Simplifying the tax code would pave the way for easier, faster, and cheaper compliance much more effectively than the IRS stepping in.

  I think you're completely oversimplifying the effort it takes for regular people, those who fall below the top 25% in financial literacy, to do their taxes.  A large portion of those hire HR Block, Jackson Hewlett, some crooked guy from the neighborhood to do their taxes, b/c they don't know how, don't get it.  Yes filing a 1040EZ is free and easy, its in the form name, however, plenty of people hire tax prep to do them b/c they don't know.

I don't have loads of faith in bureaucracy, but right now the IRS is getting the vast majority of the info electronically.  I think for the vast majority of taxpayers this would work well.  Very little in the way of input need from a taxpayer to fill this out.  

And all the talk about MFJ being an election and so is itemizing.  Obviously if stuff like this were enacted there would have to be a default scenario that takes advantage of the variety of deductions and statuses available otherwise it would be pointless.


 

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Shandril said:   I have two main issues with the IRS doing it automatically.

First, knowing the government usual efficiency, it'll be done at a very expensive premium compared to the current industry where many software providers offer different solutions. Government stepping in creates a semi-monopoly which is not good for keeping costs down.

Secondly, this would seem to me to be regressive. Low-income taxpayers already have free filing solutions offered by the IRS. A lot of taxpayers with moderate income and very simple tax situations already have free or nearly free options in the marketplace. They may have to print and mail their returns instead of e-filling but it's very inexpensive. And with simple tax situations, it doesn't take hours to do your taxes especially for the millions not itemizing. For these folks, IRS doing more of the work for them would not save much in time or money. But having the IRS step in for people with more complex returns would be costly and low/moderate-income taxpayers could end up effectively subsidizing those costs. And it may be for nothing since people with complex taxes likely still have to double-check/correct the IRS's number using the same old complex software solutions currently available.

I'd MUCH rather see a simplification of the current tax code than having the IRS itself take on the extra burden of filling taxes for people under the current tax code. Simplifying the tax code would pave the way for easier, faster, and cheaper compliance much more effectively than the IRS stepping in.

  Unfortunately, a simplified tax code is a utopia that will not happen. The only way to simlify it is to get rid of significant deductions. Everyone who's affected would yell, and it would be political suicide for anyone in Congress to seriously push this.

I don't see why the IRS can't attempt to compete with for-profit corporations. They could, for example, buy an existing vendor like TaxAct, and then sell that product on a non-profit basis till they recoup their investment. After that, the product would only require minimal fees for yearly changes.
The taxpayer would not pay a thing. They would still be competing with commercial products, so if they screw it up, the commercial products take the business. Let the best product win.
My guess is that even with inefficiency, the IRS would still be far cheaper since they don't have to pay for marketing, turn a profit for shareholders, or pay CXO's millions.
 

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Chrisk327 said:   
Shandril said:   I have two main issues with the IRS doing it automatically.

First, knowing the government usual efficiency, it'll be done at a very expensive premium compared to the current industry where many software providers offer different solutions. Government stepping in creates a semi-monopoly which is not good for keeping costs down.

Secondly, this would seem to me to be regressive. Low-income taxpayers already have free filing solutions offered by the IRS. A lot of taxpayers with moderate income and very simple tax situations already have free or nearly free options in the marketplace. They may have to print and mail their returns instead of e-filling but it's very inexpensive. And with simple tax situations, it doesn't take hours to do your taxes especially for the millions not itemizing. For these folks, IRS doing more of the work for them would not save much in time or money. But having the IRS step in for people with more complex returns would be costly and low/moderate-income taxpayers could end up effectively subsidizing those costs. And it may be for nothing since people with complex taxes likely still have to double-check/correct the IRS's number using the same old complex software solutions currently available.

I'd MUCH rather see a simplification of the current tax code than having the IRS itself take on the extra burden of filling taxes for people under the current tax code. Simplifying the tax code would pave the way for easier, faster, and cheaper compliance much more effectively than the IRS stepping in.

  I think you're completely oversimplifying the effort it takes for regular people, those who fall below the top 25% in financial literacy, to do their taxes.  A large portion of those hire HR Block, Jackson Hewlett, some crooked guy from the neighborhood to do their taxes, b/c they don't know how, don't get it.  Yes filing a 1040EZ is free and easy, its in the form name, however, plenty of people hire tax prep to do them b/c they don't know.

I don't have loads of faith in bureaucracy, but right now the IRS is getting the vast majority of the info electronically.  I think for the vast majority of taxpayers this would work well.  Very little in the way of input need from a taxpayer to fill this out.  

And all the talk about MFJ being an election and so is itemizing.  Obviously if stuff like this were enacted there would have to be a default scenario that takes advantage of the variety of deductions and statuses available otherwise it would be pointless.


 

  The poor people who use HR block aren't doing it because they can't fill in a basic form. They're doing it because the companies give them an advance loan on their refund! Most of them get a refund because of refundable tax credits. It's no different than payday loans, and just as damaging to their finances.
 The very people who need every penny are losing a good portion of the their refund to commercial companies, just to get the remaining money a few weeks quicker. It's a great argument for having the IRS do the work, actually.

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Only thing is deductions. As long as you have the option to enter them... But for me, that's the bulk of the time spent in doing taxes...

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canoeguy1 said:   
bobbybore said:   If this were true then why doesn't the IRS just tell your employer & interest/dividend payers what to withhold which would equal the exact tax you owe. No tax return required unless you want to declare additional income or deductions.
  Won't work. You can't do accurate witholding in real time, because your tax bracket depends on your entire-year income. The IRS would have to adjust your employer's witholding on a daily basis, as your mutual fund positions change and the stock market rises/falls.

  Yes, exactly why tax filing will remain difficult and profitable.

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canoeguy1 said:   
  
You're comparing the tax preparation companies to payday lenders? Wow.

I don't really understand what the big problem is. As shandril said people with AGIs under $64K have access to tax preparation software for free.

However, the ultimate question, as I stated before, is: would these returns prepared by the IRS be considered a true and accurate return (subject to any affirmative actions by a taxpayer to make changes)? In other words, if they were incorrect, and the taxpayer signed them, would the taxpayer be subject to penalties?

If the answer to the first question is no, the program is basically useless as people would be obligated to verify the return.

If the answer to the first question is yes (in other words, effectively moving to a non-self assessed system), how do you deal with the taxpayer who has income that isn't reported to the IRS?

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marginoferror said:   
canoeguy1 said:   
 

  
You're comparing the tax preparation companies to payday lenders? Wow.

 

  
The tax prep companies offer tax refund anticipation/advance loans.  THAT is what canoeguy1 was referring to.

That's a HUGE profit center for the tax prep companies as I believe they charge interest in line with the payday loan companies.  It doesn't carry the same stigma either, so people that would never consider a payday loan may very well take a tax refund "advance" (really a loan).

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I used to live in Norway, tax time was wonderful. You will get this paper with everything pre filled and if you agreed you could finish your taxes with a simple sms text. Of course if something was missing you could send forms or whatever was need it.

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riznick said:   Let the IRS show it's cards first. If the IRS errs in your favor, you just go with it.
That's not how it would work. 

If the IRS screws up in their favor, it would be up to you to realize the mistake and file 53 forms to get your money back.

If the IRS screws up in your favor, expect for them to find out eventually and charge you a crap ton of penalties and interest.

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How does anyone auto fill the rent collected in cash from 40 properties in Norway's system?

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civ2k1 said:   
marginoferror said:   
canoeguy1 said:   
 

  
You're comparing the tax preparation companies to payday lenders? Wow.

 

  
The tax prep companies offer tax refund anticipation/advance loans.  THAT is what canoeguy1 was referring to.

That's a HUGE profit center for the tax prep companies as I believe they charge interest in line with the payday loan companies.  It doesn't carry the same stigma either, so people that would never consider a payday loan may very well take a tax refund "advance" (really a loan).

  I looked on their websites. HR Block doesn't have any information, Jackson Hewitt offers the refund anticipation loan for 0% interest and 0 fees. Liberty Tax has the same no interest, no fees statement. Am I missing something?
https://www.jacksonhewitt.com/express-refund-advance-b/?_ga=1.14...
https://www.libertytax.com/easy-advance/

A little while ago tax prep companies used to be able to put markers on accounts that would allow them to see if refunds would be intercepted by previous tax debts, state tax debts, child support payments, etc. They can no longer do this. So maybe canoeguy1 was referring to the landscape back then?

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fedguy said:   You are proposing that the government make HUGE assumptions regarding income and deductions for everyone who has to file (150+ million returns). That requires them to monitor each and every taxpayer as their income, spending levels, and life changes occur. There are way too many variables involved. This would work if you are in a Communist society where "everyone is equal" and paid the same amount and where deductions do not exist.

I am still waiting for a national tax filing course to be a part of the high school curriculum.

 Did you miss the part about "If it’s not, you fix it or ignore it altogether and prepare your return yourself. It’s your choice."?

The large majority of taxpayers have very simple returns.  

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marginoferror said:   
BingBlangBlaow said:   
mapen said:   
fedguy said:   That requires them to monitor each and every taxpayer as their income, spending levels, and life changes occur. There are way too many variables involved.
  
For a large bulk of taxpayers, the IRS already gets all the information they need to compute their taxes. Wage, interest, brokerage investments, mortgage interest are all already reported to the IRS.  For a large bulk of taxpayers, this is all the IRS needs to know to complete their return. For the rest, they know who they are, and will adjust their IRS return accordingly.

  
I can only speculate why the US doesn't do this. You seem to have an industry dedicated to figuring out people's taxes. That's totally unproductive, just simplify the tax laws and the need for this industry vanishes. Complicated deductions might also be holding you back. Incentivizing certain behavior using the tax system can be great, but do it in a way that can be automated. Walking your old neighbors dog for free is nice, but shouldn't give you a tax deduction since no sane government could know that about you. Giving tax deductions for driving an electric car is fine though, as long as the IRS can access a registry over who owns what car and the registry shows which cars are electric. That way the deduction could be completely automated. Taxes do not need to be complicated.

 The tax professional industry isn't close to the primary driving factor of the complication of the tax code, and the extent to which they do contribute to the complexity of the tax code has nothing to do with their lobbying efforts.

The tax code is so complex because of lobbying efforts on behalf of particular industries that receive benefits from various provisions, the government's use of the tax code to further societal goals, and the tax professionals' planning techniques which require that the code have provisions disallowing certain tax planning techniques. The third factor is very unlikely to be fixed with an income tax based system. You simply cannot write a statute that encompasses everything and leaves out all ambiguity, ESPECIALLY a brand new statute.

  For the large majority of returns, the tax code ISN'T complex.  If you just have W-2 income, and maybe some 1099-INT, it's very straightforward.

For returns like that (which make up a substantial majority of the returns filed), the IRS could easily just send out the form, and let people sign off if they want.  

The pushback on this, and the reason the IRS doesn't do it, is because these returns are the tax preparers' bread and butter, and they don't want to give it up. 

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cestmoi123 said:   
marginoferror said:   
 

The tax code is so complex because of lobbying efforts on behalf of particular industries that receive benefits from various provisions, the government's use of the tax code to further societal goals, and the tax professionals' planning techniques which require that the code have provisions disallowing certain tax planning techniques. The third factor is very unlikely to be fixed with an income tax based system. You simply cannot write a statute that encompasses everything and leaves out all ambiguity, ESPECIALLY a brand new statute.

  For the large majority of returns, the tax code ISN'T complex.  If you just have W-2 income, and maybe some 1099-INT, it's very straightforward.

For returns like that (which make up a substantial majority of the returns filed), the IRS could easily just send out the form, and let people sign off if they want.  

The pushback on this, and the reason the IRS doesn't do it, is because these returns are the tax preparers' bread and butter, and they don't want to give it up. 

  
I would say that the tax code is complex, but the complexity has no effect on most individuals. But anyway, that's semantics, I think we agree that most individuals' tax returns are not complicated, and do not require the assistance of anyone, let alone an expert.

I don't want to beat a living horse, but the question still comes down to how it is actually implemented, and I have already stated what I think the biggest hurdle would be, but I can think of numerous other problems that would result from a system like this.

I don't think it's impossible to do this, but there are things that we would just have to live with if we decide to implement a system like this one. I'd imagine that a lot of people who think it's a great idea would hesitate if they understood the problems of such a system. I also don't buy the fact that the reason this isn't implemented is because of the lobbying efforts of the tax preparation industry. If the tax prep industry has such a stronghold, why didn't this bill even make it out of committee?

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Going with if's and could be's... if taxation was corrected to what the Framers had envisioned, there could be no direct federal income tax on individuals.  It would not be allowed.

A big spending fed gov could only expand taxation by taxing the states.  The fed gov would have little involvement with individual people.  The 17th Amendment would also need to be repealed which would make states independent from the federal government, returning a key check & balance on central power.

Reading about how distrustful and cautious Jefferson & Madison were about gov power, and seeing their crafting of checks and balances, it seems clear that the current system is broken.

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marginoferror said:   
civ2k1 said:   
marginoferror said:   
canoeguy1 said:   
 

  
You're comparing the tax preparation companies to payday lenders? Wow.

 

  
The tax prep companies offer tax refund anticipation/advance loans.  THAT is what canoeguy1 was referring to.

That's a HUGE profit center for the tax prep companies as I believe they charge interest in line with the payday loan companies.  It doesn't carry the same stigma either, so people that would never consider a payday loan may very well take a tax refund "advance" (really a loan).

  I looked on their websites. HR Block doesn't have any information, Jackson Hewitt offers the refund anticipation loan for 0% interest and 0 fees. Liberty Tax has the same no interest, no fees statement. Am I missing something?
https://www.jacksonhewitt.com/express-refund-advance-b/?_ga=1.141169073.2093330373.1483976669 
https://www.libertytax.com/easy-advance/ 

A little while ago tax prep companies used to be able to put markers on accounts that would allow them to see if refunds would be intercepted by previous tax debts, state tax debts, child support payments, etc. They can no longer do this. So maybe canoeguy1 was referring to the landscape back then?

  No, I'm referring to the fees they charge. Sure, the loan is advertised as "free". But the company doesn't do the return for free!
A return that the low-income person could file for FREE online, costs about $150 if done in an office, yet takes only approx 15 minutes to do. It shouldn't cost more than $30, so the rest is pure loansharking.
If the person is getting a $1000 loan (max is $1300) for the two weeks it takes to get the refund from the IRS, then that $120 fee translates into an interest rate of approx 300% per year! Even worse, if the refund is only $500 or so, the interest rate doubles, to 600% (since the fee is fixed). Basically, the company is confiscating a large percentage of the refund, just so the person can get the money two weeks earlier.
It's a pure ripoff of low-income people, just like payday loans.

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It's interesting that there are cases like these, where other countries have demonstrated that there is a better way, yet the most common reaction is that it couldn't work for us. It's not even a hypothetical. We should demand better from our government rather than constantly making excuses for them. The trope that government is inefficient and private industry is the only way to get anything done right ends up lowering our expectations but there's no reason the current system can't be improved.

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canoeguy1 said:   
I don't see why the IRS can't attempt to compete with for-profit corporations. They could, for example, buy an existing vendor like TaxAct, and then sell that product on a non-profit basis till they recoup their investment. After that, the product would only require minimal fees for yearly changes.
The taxpayer would not pay a thing. They would still be competing with commercial products, so if they screw it up, the commercial products take the business. Let the best product win.
My guess is that even with inefficiency, the IRS would still be far cheaper since they don't have to pay for marketing, turn a profit for shareholders, or pay CXO's millions.

The problem with government forming entities to compete with for-profit businesses is that it's been frowned upon quite a bit historically.

The argument is two-fold. First, from the standpoint of tax software companies, it's asking them to fund (via their employer taxes and via their employees' taxes) a competitive product (the IRS) that would potentially put them out of business. If the IRS buys one of them, again it'd be using taxpayer money including that of those working in the tax software industry to compete with their own products. Not a very easy move politically either.

Secondly, in the case of the IRS, the tax software companies could easily make the argument that the IRS is unfairly competing with them because in its current operation, it requires everybody to submit extensive documentation to them at no cost and in a format of the IRS's choosing. And if they do take advantage of that edge to put tax software companies out of business, there'd be a large amount of job losses, possibly even a monopoly situation where private businesses stop trying to compete in such a non-even field. One could make a case for this service to be a public service to all but it's hard to do when there's an existing striving industry already in place. It just seems more like what a socialist society would do than a capitalist one.

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Shandril said:   
canoeguy1 said:   
I don't see why the IRS can't attempt to compete with for-profit corporations. They could, for example, buy an existing vendor like TaxAct, and then sell that product on a non-profit basis till they recoup their investment. After that, the product would only require minimal fees for yearly changes.
The taxpayer would not pay a thing. They would still be competing with commercial products, so if they screw it up, the commercial products take the business. Let the best product win.
My guess is that even with inefficiency, the IRS would still be far cheaper since they don't have to pay for marketing, turn a profit for shareholders, or pay CXO's millions.

The problem with government forming entities to compete with for-profit businesses is that it's been frowned upon quite a bit historically.

The argument is two-fold. First, from the standpoint of tax software companies, it's asking them to fund (via their employer taxes and via their employees' taxes) a competitive product (the IRS) that would potentially put them out of business. If the IRS buys one of them, again it'd be using taxpayer money including that of those working in the tax software industry to compete with their own products. Not a very easy move politically either.

Secondly, in the case of the IRS, the tax software companies could easily make the argument that the IRS is unfairly competing with them because in its current operation, it requires everybody to submit extensive documentation to them at no cost and in a format of the IRS's choosing. And if they do take advantage of that edge to put tax software companies out of business, there'd be a large amount of job losses, possibly even a monopoly situation where private businesses stop trying to compete in such a non-even field. One could make a case for this service to be a public service to all but it's hard to do when there's an existing striving industry already in place. It just seems more like what a socialist society would do than a capitalist one.

  If the IRS were to buy TaxAct, for example, there would be no taxpayer money involved. The IRS would take out a loan, and pay back the loan over several years by selling TaxAct services on the open market. Once the loan is paid off, TaxAct would lower its prices to the point where they only cover costs.

I'm not sure what 'edge' the IRS would have? TaxAct, under the IRS's control, would function just as it does today. ie at arms' length from the IRS processing, and using efile to submit returns.
The only difference would be the very low cost of the product, since it would no longer need to make a profit or pay millions to the CEO.

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user1337 said:   You give people too much credit. Even if it were like that, people would still hire people to "do their taxes." Most people's brains explode when they see numbers.
  
No kidding!  One of my college-educated employees came to me to ask how to calculate a 5% fee on a client bill.  She didn't even know how to do it with a calculator, let alone on paper.  Numbers come easy to me, but I cannot believe that the average citizen cannot do simple math.

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snnistle said:   
user1337 said:   You give people too much credit. Even if it were like that, people would still hire people to "do their taxes." Most people's brains explode when they see numbers.
  
No kidding!  One of my college-educated employees came to me to ask how to calculate a 5% fee on a client bill.  She didn't even know how to do it with a calculator, let alone on paper.  Numbers come easy to me, but I cannot believe that the average citizen cannot do simple math.

  They don't have to do any math. The software does that. They only thing they have to do is transcribe the numbers from their W-2 into the right boxes. About as hard as coloring inside the lines in a grade school picture book.

Before tax software came along, everyone did their taxes in pen, by hand, INCLUDING the math. In fact, before calculators, they even had to multiply and divide by hand. Yet taxes got done. I find it hard to believe that the majority of the population can't transcribe numbers.

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