February 09, 2018

Horse 2373 - The Government Could Already Be Doing Your Tax Return For You

As someone who spends a great deal of time doing people's tax returns, I am consistently amazed at the incredible laziness of people. This week we had a chap come in, who had only a single PAYG Summary Statement, one bank account and no deductions and yet he was still prepared to pay us $220 just so he could get a refund.
As I looked at everything and saw that there was pre-filling data, I couldn't help but question why there isn't already a government pre-filling system. They already have all of the information, they not could just as easily send you an already finished tax return which you would look over and either agree or disagree with. Bang a drum and it's all been done.
So why don't they?

It makes complete sense to me that rather than going through the pain and effort of having to worry if you haven't declared anything, for the cast majority of people who only have one or two jobs, a few back accounts and some shares, that because the government already has the information, they should tell you what info that they have on you and you can check it; rather than living in fear about trying to second guess them.
I guess libertarians might be unhappy with the idea that the government is telling you that they have information but since they already have it because the law compels financial institutions to report their payments to people, then that argument is already moot. The big bad scary database already exists and they've already got better information than you do. Wouldn't you like to hold the government accountable for a change?

Then comes the subject of doing tax returns in the United States. Ugh.
I am increasingly becoming convinced that the rarefied atmosphere of W2, W8, 1099 and whatnot, is deliberately designed to look so hideous that you will give up and give your stuff to accountants and tax preparers. Forget David Lewis, Robert H. "Three-Fingered" Birch, The Goings Gang and Samuel Mason, today's highwaymen are Messrs H&R Block, Intuit, QuickBooks and Sage.

As an accountant in Australia who is trying to do US Tax Returns for some of our clients, I find it utterly reprehensible that there isn't a standard system of filing tax returns in the United States. In Australia, we have MyTax, which is run through the MyGov system. It's pretty simple to use and is quite secure.Most importantly, as a government run system, it means that the ATO and other government reporting agencies, can update the system and there isn't any confusion.

In the United States, no such system exists. This is crazifying in the land of 2018.You can still file on paper but unlike Australia which solved this problem more than 20 years ago, America's IRS just makes you want to bang your head repeatedly on the desk.
Why, why, why? How can a country be so incredibly, Statue of Liberty sized monumentally idiotic? As usual, follow the money.

There is a system of sorts called Free File. Practically nobody knows about it and because the system unilaterally changes every single year without telling anyone, people who may have used the service one year, then find that they asked to pay an amount of $50 for filing their taxes the next.
Filed for free with NumptyTax's Free File last year? Well this year you can't. However, since we've already got last year's information, why not pay us $50 to file your tax return?
This will be enough to hook most people because if you have someone who throws their hands up when they only have a single payment summary statement from their employer, one bank account and no deductions, then that's an easy pick off for NumptyTax.

The Free File system is run by the delightfully sounding Free File Alliance. It sounds altruistic but scratch the surface even just a little bit and you find that it is a very very crooked penny indeed:

https://freefilealliance.org
The Free File Alliance is a nonprofit coalition of industry-leading tax software companies partnered with the IRS to help millions of Americans prepare and e-file their federal tax returns for free. Free File is the fast, safe and free way to do your federal tax return online. Free File Alliance member companies provide more than a dozen brand name tax software options at no cost.
Free File serves 100 million American taxpayers.

Or so it claims.

Although 70% of American taxpayers (about 100 million people) are eligible for Free File as the system claims, only about than 50 million returns have been filed through the Free File program since it began in 2003. We'll be generous and call it 60 million and thus wildly overstate their claim for the purpose of this.
Since 2003, there should have been roughly 1500 million tax returns filed in total. Even if you allow for the generous overstatement of 60 million, that means that at best that only 4% of tax returns have been filed for free since the system began 15 years ago as compared to the ones that were eligible.

This means to say that 96% of all tax returns that could have been filed for free have had charges placed on them by private firms. 96%?? How this isn't seen as one of the greatest crimes of the century, I have no idea.
At say $50 per tax return, this means to say that roughly $72 billion has been stolen from the hands of the public, and the United States Federal Government has absolutely willingly endorsed it.

So then, if there was a free $72 billion just lying around, who would be the logical culprits to suspect who'd want to get their thieving mits on it? How about those people who supposedly provide the service for free?

https://apps.irs.gov/app/freeFile/jsp/index.jsp
eSmart, FileYourTaxes, TaxSlayer, FreeTaxUSA, H&R Block, 1040Now, TurboTax, exTaxReturn, OLT, 1040.com, MyTax, TaxActInc... all look like pretty good places to start.

And I'm not the first to discover this pile of steaming malarkey. Propublica¹ and NBC² have both written pieces on this. It appears that behind this not very well disguised front, is just the lobby group for making bribes to members of Congress.

Their bribery has been successful. H.R. 4938 which was passed by the 114th Congress was "To make permanent the Internal Revenue Service Free File program." Take particular notes of sections 3 & 4:

https://www.congress.gov/bill/114th-congress/house-bill/4938/text
(3) The IRS Free File program offers Federal individual income tax return preparation and electronic filing services to more than 70 percent of taxpayers, approximately 100,000,000 taxpayers at the end of the current tax filing period, with tax software and electronic filing provided at no cost to the taxpayers who use the service or to the Federal Government from tax software and electronic filing companies participating in the program.

Offering a thing is pointless if nobody knows about it and if you keep on changing it so that it's so unwieldy that not even a twentieth of the target market uses it.

(4) By the end of the current tax return filing season, it is estimated that the IRS Free File program will have saved taxpayers approximately $1,300,000,0000 (sic.) and will have saved the Federal Government about $125,000,000 in processing costs.

Saved $1.3 billion? What a load of complete bunk. The US Congress is directly and outright lying in the middle of a piece of legislation. Under no circumstances ever, should it cost you for the "privilege" of paying your taxes. Not paying something that should cost you nothing in the first place is a net saving of approximately $0,000,000,000 by my calculations.
The fact that it saved the government $125m in processing costs is pathetic in comparison with the $4800m in costs paid by the general public who are paying for the "privilege" of paying their own taxes. It should be a reasonable cost of the administration of government to collect revenue.
Never mind the fact that the billions of dollars which could be paid as refunds is just sitting around because people don't file their tax returns.

Article I, Section 8, Clause 1 of the United States Constitution, which is commonly known as the "Taxing and Spending Clause" gives the Congress that power and I don't think it unreasonable that that power is married to the responsibility:

https://www.law.cornell.edu/constitution/articlei#section8
The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States.
- Article I, Section 8, Clause 1 of the United States Constitution (1789)

As far as I'm concerned, this is an abrogation of responsibility which costs the US Taxpayer billions every year and the only reason that they won't march on Congress to demand that Congress and the Federal Government does its job, is that it is hard to see that you are being fleeced when you have the wool pulled over your eyes by the wolves.
The government should already be doing your tax return for you, which you then should absolutely have the right to dispute and amend. They already have all of the information, they could just as easily send you an already finished tax return and a refund and it certainly shouldn't cost you to file your tax returns both here in Australia and in the United States. At least we're kind of close in Australia.

https://www.propublica.org/article/filing-taxes-could-be-free-simple-hr-block-intuit-lobbying-against-it
https://www.nbcnews.com/business/taxes/turbotax-h-r-block-spend-millions-lobbying-us-keep-doing-n736386

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