Another ‘Free’ Government Service
Sen. Elizabeth Warren says taxpayers shouldn’t have to pay for tax software. She has the support of other liberal Democrats. She has introduced a bill that would require the IRS to make available a “free” online filing option to some taxpayers. She doesn’t mention that taxpayers will have to pay for the development and continuing maintenance of this system through higher taxes. So it won’t be free. Rather it will be a system the cost of which is hidden in the fine print of the federal budget. Never mind that TurboTax and other software companies now offers a no-cost option for a majority of taxpayers. Sen. Warren says TurboTax keeps it secret: a secret known only to the 3 million people who use it and to millions of others who know about it but choose not to use it. The IRS website has a direct link to the free software. The various software companies also have links from their websites. Wouldn’t it be simple if Sen. Warren were to promote the existing free system? Who believes that a system developed by the IRS would be easier to use?
In recent years we have seen the federal government struggle with online ObamaCare exchanges. If the federal government has difficulty with health insurance exchange sign-ups, one can only image how the government will handle the vastly more complicated income tax law. Sen. Warren isn’t actually proposing a comprehensive free filing system. She isn’t that naive. She is going to leave the heavy lifting to the experienced software companies. She is only proposing another system similar to the free software system already available.
Nearly one-half of individuals who file returns owe no tax. They file in order to obtain refunds of money withheld from their wages. What if we simply changed the withholding rules and filing thresholds so that middle- and lower-income taxpayers are exempted from filing? It wouldn’t be that difficult. Social security and Medicare taxes are withheld from wages of employees. Employees do not have to file either social security or Medicare tax returns. We could blend the tax rate structure for payroll taxes and income taxes so that a flat amount is withheld from earnings up to a certain threshold. Only individuals with higher earnings and sources of income not subject to withholding would have to file. We could keep progressiveness. That probably is necessary to get any tax proposal through Congress. But that would mean giving up control over the populace and freedom no longer sells well in Washington.
Senator Warren makes no mention of a plan for the majority of taxpayers who also file state tax returns. Integration with state filing is extraordinarily complicated. Without integration, taxpayers will likely have to buy commercial software to file their state returns. Taxpayers who buy software to file their state returns will probably use it to file their federal returns. Why would taxpayers go to the hassle of entering the same data into two separate and distinct systems? A few states might attempt to tie into a federal system, but it surely would not be all. The short history of ObamaCare tells us that state exchanges of health insurance that were supposed to be the core of the healthcare system are failing. By the end of next year most or all will likely be gone. About 20 states now participate in the current free system available for federal tax returns made possible by the fact that TurboTax and other software companies did the hard labor required for integration. Although preparation may be free, electronic filling of state returns is not necessarily free.
Senator Warren also wants the IRS to send some taxpayers a “completed” federal return which the taxpayers can sign and file. You can be sure that there will be no promise that the taxpayers who accept this option will be exempt from subsequent audits that can lead to additional taxes, penalties, and even prison. Who believes that the IRS will work to minimize the taxes on the returns it prepares? Will the IRS encourage contributions to Individual Retirement Accounts? Will the IRS help taxpayers avoid ever increasing penalties imposed on taxpayers by ObamaCare? Will the IRS recommend investing in tax-exempt bonds to save taxes? What about itemized deductions?
I don’t think anyone believes that the IRS will adapt to a role where it advocates for taxpayers in place of its traditional role of tax enforcer and collector.
Dale Bandy has a Ph. D. in business from the University of Texas. He has authored and co-authored ten books and dozens of articles including seven previous articles in the American Thinker.