Thursday, July 11, 2013

Rent-Seeking: Examples 457 and 458

Amazing.  Also totally unsurprising.

Imagine filing your income taxes in five minutes — and for free. You'd open up a pre-filled return, see what the government thinks you owe, make any needed changes and be done. The miserable annual IRS shuffle, gone. 

It's already a reality in Denmark, Sweden and Spain. The government-prepared return would estimate your taxes using information your employer and bank already send it. Advocates say tens of millions of taxpayers could use such a system each year, saving them a collective $2 billion and 225 million hours in prep costs and time, according to one estimate. 

The idea, known as "return-free filing," would be a voluntary alternative to hiring a tax preparer or using commercial tax software. The concept has been around for decades and has been endorsed by both President Ronald Reagan and a campaigning President Obama. "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." 

 So why hasn't it become a reality? Well, for one thing, it doesn't help that it's been opposed for years by the company behind the most popular consumer tax software — Intuit, maker of TurboTax. Conservative tax activist Grover Norquist and an influential computer industry group also have fought return-free filing. Intuit has spent about $11.5 million on federal lobbying in the past five years — more than Apple or Amazon. Although the lobbying spans a range of issues, Intuit's disclosures pointedly note that the company "opposes IRS government tax preparation."

"Government tax preparation"?  Seriously?  That's absolutely breathtaking.  In Chile, they send you a bill.  You pay the bill, or you can figure it out yourself and appeal it.  Either way, it takes about 20 minutes.


Example 458:  A nanny "bill of rights."  The effect of which will be to make it impossible to hire nannies, forcing people to use much more expensive means of child care, all of which benefit unions and the health care cartel.


John Thacker said...

So, they send you a bill. Let's suppose that they leave something out that they don't know about (which would be incredibly common, even with stepped up 1099 requirements from investment firms.)

If you just pay that bill, are you immunized from claims? Hello tax evasions!

On the other hand, if you just pay that bill, are you still subject to the big nasty IRS penalties if they missed something and thus you missed something? Uh oh, sounds like people had still better try to figure out their proper taxes as now, and lots of people would still need to take all their stuff to a preparer anyway, since they wouldn't really know if the government calculation had gotten everything correct.

John Thacker said...

Right now the government doesn't protect you if your employer or bank makes an error, you're still liable. In fact, you're also still liable for penalties if the government made an error, say if it's your employer. (Which happened to a friend of mine, whose withholding was screwed up by the government, which failed to process her duly filled out W-4 and withheld for the wrong state.)

John Thacker said...

If, for example, I followed my mortgage company's statement on my 1098, I'd end up deducting too much, because they incorrectly insist on labeling the Columbia, MD CPRA fee as a deductible local property tax. (It's not, because Columbia is a private organization, even though it acts like a city.) If I did that, and I were audited, then I'd owe all the penalties, and couldn't complain that the 1098 was wrong.

Let's say we had the government computed system. If I just paid the incorrect government bill, computed from the incorrect 1098, would I be immune from penalties and/or back taxes? Or would I get nailed, meaning that I should still spend the time to figure out the proper tax (or the money to have someone do it for me).

Mungowitz said...

JT! My man! I have never seen anyone (self)described as a "blog commenter" before. But now I can see why you describe yourself that way. You are in fact a blog commenting machine!

Anonymous said...

Personally, I prefer a system that makes paying taxes as painful as possible.

Including no automatic withholding so that each taxpayer must write a check. Every year.

Anonymous said...

To concur with the Anonymous above, I've long advocated that all corms of sales/VA taxes be 100% transparent to be "paid" by the final consumer. I advocate retail "shelf prices" (or menu prices) that are completely free of all VAT, with the tax being paid at the register.

We know that the elasticity of demand already determines how much of a tax will be paid by each party in a transaction (in an over-simplified sense), so this proposal shouldn't really affect the final costs of goods (I'm certain that there will be some slippage on this).

While I am aware that there are problems of accounting here (determining what purchases are consumed versus improved for sale--but some states that offer sales tax exemptions for purchases made for resale might provide a road map out of this snarl), I think it would be valuable for the public (including myself) to know how much of a products price is in inputs/overhead, and how much is in taxes. Contrast that with, say the UK's VAT, where the price marked is the price you pay, and high prices look to the consumer to be "excess profits."

Christian Bjoernskov said...

I guess it needs to be mentioned that the Danish tax authorities themselves regularly estimate that about a third of all government-prepared returns are wrong. One of the usual problems is that the authorities forget various deductions. Given how agressively they have been pursuing cases in recent years - perhaps worth a post of its own - the system isn't that easy to recommend.

robert said...

I am no Norquist advocate, but the propublica piece left out most of his critical arguments (echoed above) made in his initial letter to the president here:

The strongest IMHO are:
a) the Tax Collector is now the Tax Preparer, a conflict of interest, and
b) the citizen is still liable for any errors that Return-free generates

The weakest arguments are that this will spell hellfire and damnation and that everyone will still spend the same amount of time filing their taxes.

Also ... has anyone asked: if the Feds can do this tax prep, why couldn't some private company do it better? Also isn't that exactly what Turbo Tax or H&R Block does? At least in these cases we *know* what the fee is; if the IRS creates this program, who knows what the cost is?

Unknown said...

I always stay current with this type of tax news. I enlisted the help of many different tax preparation companies, and a few really did an outstading job. You should look into getting a professional.

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