Why we can't have free online tax filing

April 15, 2019 (1103 words) :: Powerful corporations view politics as an arena in which to ensure their continued existence, at the expense of everybody else.
Tags: us-politics, public-services

This post is day 105 of a personal challenge to write every day in 2019. See the other fragments, or sign up for my weekly newsletter.

Last week, ProPublica wrote about the progress of corporate lobbying efforts to prevent the IRS from offering free tax filing services: Congress Is About to Ban the Government From Offering Free Online Tax Filing. Thank TurboTax.

Just in time for Tax Day, the for-profit tax preparation industry is about to realize one of its long-sought goals. Congressional Democrats and Republicans are moving to permanently bar the IRS from creating a free electronic tax filing system.


In one of its provisions, the bill makes it illegal for the IRS to create its own online system of tax filing. Companies like Intuit, the maker of TurboTax, and H&R Block have lobbied for years to block the IRS from creating such a system. If the tax agency created its own program, which would be similar to programs other developed countries have, it would threaten the industry’s profits.


Those efforts have been fueled by hefty lobbying spending and campaign contributions by the industry. Intuit and H&R Block last year poured a combined $6.6 million into lobbying related to the IRS filing deal and other issues. Neal, who became Ways and Means chair this year after Democrats took control of the House, received $16,000 in contributions from Intuit and H&R Block in the last two election cycles.

One Democratic congressman who says he would have voted against the bill explicitly calls it out as a boon to the industry:

[…] It prevents the IRS from creating free-filing assistance, developing its own tax preparation and filing software program, or providing pre-prepared returns for taxpayers who may wish to choose them. As a result of these provisions, millions of taxpayers will needlessly continue to pay for costly tax preparation services.

This is a gift to companies that provide tax filing services but a cost to over 70% of American tax filers who could auto-file but for this provision.

I mean, on the one hand, we all know corporate money in politics is a huge problem - generally, corporations aren’t going to spend money on lobbying unless they think they’ll make money as a result, eventually.

Still, this feels like an especially brazen attempt to prevent the development of a consumer-friendly policy, simply because that policy could diminish the power of corporations that are currently profiting from a subpar system. While we can’t really fault the companies for pouring money into lobbying against it - they kind of have to, to honour their fiduciary duty to shareholders - that doesn’t mean that what they want is good for the rest of us. A robust democracy would prevent exactly this sort of regulatory capture from taking place, by ensuring that the needs of citizens are placed above the profit motive of corporations. But this isn’t what we have, and corporations know it.

This relates to one of my main concerns with Democratic presidential candidate (and sometimes purveyor of bizarre tweets) Andrew Yang, who has proposed automatically-filed income taxes. Now, on the face of it, this is a great (and very obvious) policy; the challenge lies primarily in the implementation. As I wrote in a previous fragment about Yang:

My main problem with him is that he treats politics as an intellectual game, where he just has to implement some non-ideological, fully-costed policies and then things will magically get better. He does not seem to acknowledge the possibility of conflict.

But politics isn’t a debate club; it’s a struggle. The state is a contested terrain between competing forces with varying degrees of power.

After all, if the policies he proposes are so reasonable, why aren’t they in place already? Right now, corporations happen to be extremely powerful, and there are particular strands of capital that would strongly resist lots of his policies. Intuit, for example, has lobbied against simplifying taxes for an extremely rational reason: because a broken tax code allows them to sell tax prep software. Financial companies and for-profit universities that profit from widespread student loan debt are directly incentivised to opposed any forgiveness scheme that might eat away at their profits. And health insurance companies have a fiduciary duty to be opposed to a decent single-payer healthcare system.

Is Andrew Yang ready to go up against these companies to enact his policies? I would be more convinced of his suitability if he ever mentioned even the possibility of conflict. But as far as I can tell, from Yang’s vantage point, there is no political conflict between different groups. If working-class Americans are finding that work doesn’t pay as well as it used to, and are increasingly having trouble making ends meet, then of course we should help them, but it’s nobody’s fault. It’s just what happens.

What seems to drive Andrew Yang is a naive faith in the idea of technocratic progress, as if politics were a matter of brainstorming objectively better solutions to society’s problems. But if that were the case, then we’d have automatically-filed income taxes already. The reason politics appears so broken is because it’s actually a site of contestation among various competing interests, and any politician has to choose between pissing off those with money and power, or betraying the people they were ostensibly elected to serve.

In this particular case, I don’t think there’s much of a middle ground. There is an inverse relation between the quality of free, publicly-provided income tax services, and the profits of tax prep software companies. Pushing for the former will require confronting the power of the latter, and I wouldn’t trust someone like Yang to actually carry through with something that would serve as an outright challenge to the powerful.

Automatically-filed taxes would be a great thing, but because they necessitate the obsolescence of proprietary tax software companies, implementing such a policy would require a struggle. This is frustrating, because it’s not even that hard to imagine a world without proprietary tax software companies; many countries have much simpler tax codes, and better filing systems, than the US, diminishing the need for expensive and complex third-party services.

The takeaway here isn’t to give up and resign ourselves to paying TurboTax an effective flat tax of $39.99 every year for the rest of our lives. Instead, the lesson is that circumstances that appear inefficient can be stable, because someone is benefiting from the inefficiency - one person’s dystopia may be another’s utopia. This recognition should inform political strategy. Politics can’t always be about bipartisanship and compromise; sometimes, there is an enemy.

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