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In the wake of allegations that the Internal Revenue Service has been extensively used as a weapon by the Obama Administration against political foes, many have reflected on the frightening notion that the IRS will soon be in charge of your health care and what services you are provided under Obamacare. It is worth remembering that it has been proposed to nationalize the tax preparation process under the IRS - you know, because nationalizing health care, the student loan industry and large swaths of the automotive industry has worked out so well already.
Today, the majority of individual tax returns are filed electronically, rather than by mail. Electronic filing saves taxpayers money and reduces the likelihood that they will make mistakes. All taxpayers can access free fillable forms to quickly input their data, and 70 percent of taxpayers can use software and file electronically for free thanks to a voluntary public-private partnership between tax-preparation companies and the IRS.
For some, the next obvious step is to get the private sector out of the way altogether. Under so-called "return-free" proposals, the government would prepare individuals' tax returns, annually sending a pre-filled form for a taxpayer to review and approve. Proponents say a government-run system would be simple, painless and convenient, and would significantly reduce errors in the tax-filing process. If you believe this, I have some opportunities in the solar-panel business I'd like to talk to you about.
The truth is that a return-free system only sounds good until you think about it. When you do, it doesn't take long to understand why we need to keep the government out of the tax-preparation business.
There are so many problems with this idea, one hardly knows where to begin.
Let's start with the obvious money-grab and power-grab by the IRS. Tax preparation is a $9 BILLION industry, with over 300,000 jobs and 100,000 businesses set up to provide this service to consumers. The proposal is for the IRS to take over this entire industry. You know, because what we need in order to foster more efficiency in the system is more bureaucrats. Said no one ever.
Not only will this not eliminate tax returns as we know them, or the errors, or inherent complexity in the system, it is a CLEAR conflict of interest. The IRS has one job (or had one job, originally, before it got into the medical business): COLLECT the taxes. It measures its success or failure by collecting as much in tax income as possible. Third party tax preparers have the consumer's best interest in mind - not that of the IRS. Eliminating private tax prep will remove an important consumer safeguard against what will become an unchecked government agency with the power to confiscate wages. And who do you go to if there's an error on your return? Oh yeah, the IRS again. Because they're already so easy to work with - just ask the Tea Party groups who filed for tax-exempt status since 2010.
And has anyone considered the potential to violate the privacy of millions of American taxpayers? Each year, the IRS mails literally tens of thousands of refund checks and other documents to the wrong address. Imagine that happening with detailed tax returns? What could identity thieves do with all that information?
I don't know about you, but I'm not keen on yet another massive expansion of the IRS that would dwarf the expansion required to implement Obamacare. But that's exactly what would be required. By the most optimistic estimate, it could take several years and hundreds of millions of dollars to implement this idea. More realistic estimates indicate a decade or more, and billions of dollars at taxpayer expense.
All of this is to present yet another in an endless series of solutions looking for problems. Why does the private tax preparer need to be replaced at all? This system was tried in California, and less than one percent of taxpayers participated. It seems citizens like to go to a trusted private tax expert for confidental advice on how to maximize deductions and how to avoid governmental harassment.
Jeff is a 2013 BlogCon Panelist. Follow him on Twitter at @ChargerJeff.