The voices of Tax Policy Center's researchers and staff
Nice to hear the IRS is finally going to regulate tax preparers. For years, fly-by-night tax prep outfits have been doing, how shall we say, a less-than-stellar job filling out returns for the confused and vulnerable. But cracking down on those seasonal shysters who abuse the system is only attacking a symptom of the real disease, which is our insanely complex tax code.
Making preparers register with the IRS and take a test is a good idea. But it isn’t going to do very much to close the tax gap, as Senate Finance Committee chair Max Baucus (D-Mont) and ranking Republican Chuck Grassley (R-Iowa) seem to believe. And, surprisingly enough, it may not even result in more accurate returns.
Last October, TPC visting fellow Larry Lokken noted in TaxVox that unregulated preparers hardly have a monopoly on errors. In fact, one study showed that highly-trained and registered enrolled agents often make more mistakes than other preparers. The truth is, no one can agree on the "right" answers for an even moderately-complicated return. Give 10 honest and highly-trained accountants or lawyers the same information, and you are likely to get back 10 different returns.
The real solution, as Baucus and Grassley well know, is a tax return that people can understand and does not scare the hell out of them. And they don’t need to create the proverbial return-on-a- postcard to fix the problem. A few simple changes could make filing vastly easier for many low-income people who are frequent victims of ill-prepared (and worse) preparers.
For instance, my TPC colleague Elaine Maag suggests Congress could drop the asset test for the Earned Income Credit. The child credit and the dependent exemption are based on income. There is no reason why the EITC should not be as well. Similarly, a few years ago Congress simplified the definition of a child. That was a big step, but it did not go far enough. A child qualifies for the EITC and the dependent exemption if she is under 19 or under age 24 and a student. But she qualifies for the child credit if she is younger than 17. Want to protect low-income filers from being abused by bad preparers? Make it easier for them to do their own returns.
Congress could also stop adding above-the-line deductions for those who don't itemize. This has become a troubling fad lately, and it only does more to complexify life for those taking the standard deduction which, after all, was supposed to make their lives easier.
We are all appalled at the way taxpayers are abused by tax prep. But even outfits such as Mo Money Taxes, started by a jewelry wholesaler and a FedEx worker, are not the real problem. The tax code is the problem. And Congress should fix it.
Posts and comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.