April 15, also known as Tax Day in the United States, is just weeks away, and many non-tax savvy Americans are turning to tax software programs like TurboTax to complete their 1040s. TurboTax touts itself as the No. 1 tax preparation software and says it offers a faster, more affordable way for Americans to do their taxes than an accountant or a tax service provider such as H&R Block.
Absent from any TurboTax ad, though, is that the software’s maker Intuit has spent millions lobbying the federal government to keep the government from implementing a “return-free filing” program.
Already a reality in Denmark, Sweden and Spain, return-free filing is a simpler way to do taxes.
According to the Tax Policy Center, which is affiliated with the Urban Institute and Brookings Institution: “In a return-free tax system, revenue is collected through some combination of withholding and end-of-year reconciliation by the tax agency; individual taxpayers do not file annual returns. In an exact withholding system, the tax agency makes every effort to withhold the exact amount of taxes due from paychecks and other income, so that no end-of-year filing, payment or refund is needed.”
In more basic terms, in a joint report from NPR and NBC, the groups explained return-free filing as opening a pre-filled return, see what the government thinks you owe, make any needed changes and be done.
But Inuit is not a fan of this concept and has spent about $11.5 million on federal lobbying in the past five years and disclosed that it “opposes [Internal Revenue Service (IRS)] government tax preparation.”
Spokeswoman for Inuit, Julie Miller sent an email statement to ProPublica answering questions the news organization raised about the companies resistance to return-free filing. Miller highlighted that — in the United States — “more than 70 percent of all taxpayers are eligible to choose for free from among the best-known, most-trusted tax prep software programs,” and highlighted that every taxpayer “can file their federal taxes free by using Free File’s simple ‘fillable form’ product.”
“This is not some pie-in-the-sky that’s never been done before,” said William Gale, co-director of the Urban-Brookings Tax Policy Center. “It’s doable, feasible, implementable and at a relatively low cost.”
Disclosures from 2011 show that Intuit lobbied against two bills that would have allowed many U.S. taxpayers to file pre-filled returns for free. Neither bill lasted very long. The company also lobbied against bills in 2007 and 2011 that would have barred the Treasury Department, including the IRS, from initiating return-free filing.
Intuit’s argument is that if the IRS acts as a tax preparer, taxpayers may end up paying more money. The company is a member of the Computer and Communications Industry Association (CCIA), which has a “STOP IRS TAKEOVER” campaign and calls return-free filing a “massive expansion of the U.S. government through a big government program.”
“This is not about Inuit, although some work very hard to make it appear that way,” wrote Miller. “This is about a basic belief that taxpayers deserve the right to Voluntary Compliance so they can keep more of their hard earned money.”
But in the company’s latest annual report filed with the Securities and Exchange Commission, Intuit says that free government tax preparation presents a risk to its business.
About 25 million Americans used TurboTax last year and a recent analysis by the Government Accountability Office (GAO) found the software was used for more than half of individual returns filed electronically. TurboTax products and services also make up 35 percent of the $4.2 billion Intuit made in total revenue last year.
In response, Austan Goolsbee, who served as the chief economist for the president’s Economic Recovery Advisory Board, wanted to remind consumers and groups opposed to the program that it’s voluntary. “If you don’t trust the government, you don’t have to do it,” he said.
Goolsbee has written in support of the return-free filing and said in a 2006 paper that return-free filing could save about $2 billion in tax preparation costs and could “signiﬁcantly reduce the time lag in resolving disputes and accelerate the time to receive a refund.”
Other advocates of the program such as Paul Caron, a tax professor at University of Cincinnati College of Law, say the implementation of the program would not cause any more work for the IRS, but would instead shift when they do their work. Instead of examining a taxpayer’s files while checking a return, the IRS would share its tax calculation before a person files.
“When you make an appointment for a car to get serviced, the service history is all there. Since the IRS already has all that info anyway, it’s not a big challenge to put it in a format where we could see it,” said Caron. “For a big slice of the population, that’s 100 percent of what’s on their tax return.”
Currently the only place in the United States that offers a return-free filing program is Intuit’s home state of California.
The state launched a pilot program named ReadyReturn to test the concept in 2005. For the next five years, Intuit spent more than $3 million on lobbying and political campaigns in the state. In 2006, Miller told the Los Angeles Times that the reasoning behind the lobbying efforts was because Intuit saw “a fundamental conflict of interest for the state’s tax collector and enforcer to also become people’s tax preparer.”
Former California Republican legislator Tom Campbell told ProPublica he was surprised at the opposition to the program. “The government imposed the income tax burden in the first place,” he said. “So if it wants to make it easier, for heaven’s sake, why not?”
Intuit’s financial opposition to the program resulted in Joseph Bankman, a Stanford Law School professor who helped design ReadyReturn, spending close to $30,000 of his own money to hire a lobbyist to defend the program in the California legislature.
ReadyReturn survived, but without much of a budget, so it’s not a widely-known program. Fewer than 90,000 California taxpayers used it last year. Those that did use it seemed to be happy with it, as 98 percent of surveyed users said they would use the program again.
The state’s tax agency has also praised Ready Returns, saying they are cheaper to process than paper returns.
Bankman thinks national return-free filing could make many others happy, too. “We’d have tens of millions of taxpayers,” he said, “no longer find April 15 a day of frustration and anxiety.”