The voices of Tax Policy Center's researchers and staff
Where, as they say, is the outrage? For all of the indignation over the new health insurance mandate, I am amazed at the serenity at which we accept another (near) mandate: That we must pay somebody to help us do our taxes.
The government does not specifically require us to hire paid tax preparers or buy commercial software, of course. But it has, in effect, left millions of taxpayers with no real choice. Congress has created a tax code that makes it nearly impossible for many Americans to file returns without paid help. And even those who could (most non-itemizers for instance) are so intimidated by the whole process that they pay people to help them anyway.
Thus, in 2005, 89 percent of individual taxpayers either used commercial software or hired paid preparers to help them do their civic duty. Just 11 percent, according to my colleague Eric Toder, filed returns on their own.
Yet, we just shrug and pay our $59 for commercial software or pony up between a few hundred and a few thousand dollars to paid preparers. No constitutional challenges. No state attorneys general at the barricades. Many of us, in fact, are likely to spend more money hiring a human being to do our taxes than we’ll pay in penalties for refusing to buy insurance ($95 in 2014 increasing to $695 by 2016). Indeed, I’m willing to bet that more of us will pay somebody to prepare a tax return than will purchase medical coverage, despite the insurance mandate.
What’s worse, many of those we trust to do our returns are incompetent or worse. Professor Larry Lokken, a Tax Policy Center affiliated scholar, wrote a couple of nice blog posts last year on this troublesome business. At least the private companies from which we’ll have to purchase insurance are minimally competent.
When you buy insurance, you receive an obvious benefit. What do you get for the dough you put out for tax prep? New IRS data suggest that doing taxes on your own has become so difficult and time-consuming that paying someone actually drives down your compliance costs. A strong case can be made that it is in fact not possible for many of us to file a tax return without paying for help. Don’t believe me? Try to manage the Alternative Minimum Tax on your own.
On April 8, Elaine Maag and Bill Gale of TPC, John Guyton of the Internal Revenue Service, former H&R Block executive Robert Weinberger, and I will be discussing some of the implications of paid tax prep. You’re welcome to register here to join us in person or on the Web (and unlike commercial tax software, it’s free).
There are plenty of ways to fix filing hell. Here are two possible solutions: Simplify the tax code by dumping complex special interest tax breaks (which would also have the benefit of lowering rates); Or, the IRS could make filing a lot easier by automatically filling in the information you get on your 1099s and W2s on an electronic 1040. That could at least help people with very simple returns. I know, Intuit will do everything it can to kill this idea and conservatives will rail about Big Brother—except the government already has all this information.
In the meantime, where is the Tea Party? Where are the whack-a-doodle radio and TV talkers? Where is the mavericky former governor of Alaska? Where is the outcry for a simpler tax system? Where is the outrage?
Posts and comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.