Innovation Policy Post

IRS Tax Prep Not A Budget Solution

CCIA has long opposed efforts in Congress to implement “Return-Free Filing”, a proposal under which the IRS would fill out tax returns and send them to the taxpayer for approval -- rather than have taxpayers fill them out themselves. We object to Return-Free due to factors such as government competition with the private sector, the IRS’s conflict of interest, and the effect on the fundamental relationship between taxpayers and government.

Return-Free would unnecessarily insert the federal government into a new economic role currently played by the private technology sector. A robust private sector industry already serves citizens’ tax preparation needs. Government should not compete in commercial markets. Such activity is antithetical to a successful free market and unfair to American taxpayers and shareholders of private businesses, who are forced to compete with publicly-funded government entities.

As discussed in a TechPresident article by Nancy Scola, opposition to government competition with the private sector is bipartisan. Former Republican Presidential candidate Tim Pawlenty talked about a “Google test” in which the government shouldn’t be providing a service if a provider can be found on the Internet. The Obama administration’s then Chief Information Officer, Vivek Kundra, talked about the need to “make sure that from a consumer technology perspective that we’re no longer actually tied to the model that the government is so special that it has to go out there and invent its own set of specialized IT projects.”

Return-Free would result in the tax collector also preparing tax returns. There is an obvious conflict of interest between the IRS’ mission to maximize revenue collections and the taxpayer’s objective of minimizing their personal tax liability. Private sector tax preparers and software companies work for the taxpayers who are their customers. However, how many taxpayers would be comfortable trusting the IRS to prioritize their interests at the expense of the agency’s mission to maximize revenue? The very fact that some in Congress have discussed a Return-Free system as a way to close the “tax gap” signifies that they expect it to increase revenue by causing taxpayers to miss legal deductions they are entitled to.

Finally, Return-Free is problematic in that it erodes the tradition of Voluntary Compliance and lessens the degree of citizens’ engagement in the tax system. This could fundamentally alter the relationship between taxpayers and government. Taxpayers would merely have a prepared return presented to them rather than confronting and taking responsibility for their finances once a year. As a nation born out of a tax disagreement between citizens and government, surrendering this responsibility to government would be unthinkable.

Posted By Ken Kurokawa | 9/22/2011 4:09:30 PM

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