What if the government filled out your tax form for you?
It’s possible, says finance prof — but probably won’t happen here
The Internal Revenue Service headquarters in Washington, D.C. (Chip Somodevilla | Getty Images)
As midnight approaches on Monday, countless Americans will be ready to finally hit the send button on their computers to get their federal and state tax forms on their way to Uncle Sam.
They’ll do that after having spent days pulling together receipts and forms, having shelled out money for computer software to help them work through what they owe or what the government owes them, or paid an even larger sum to hire a professional to do their taxes for them.
But does it have to be that way? No, says Cliff Robb, who teaches about personal finance and human behavior at the University of Wisconsin-Madison.
It’s not that our tax system is simple. Because it’s not. “I do believe the U.S. has one of the more convoluted structures and also requires a lot more effort to understand,” says Robb. “It forces individuals to engage much more directly with the tax system than other industrialized countries.”
Even for people who don’t pay fees to a tax preparer or for tax prep software, there’s a significant “opportunity cost” to filing, he says.
“Most people are going to take a weekend or a couple of days,” says Robb. And it’s not just time. “It creates more stress than is necessary, I believe.”
Potential technical shortcuts that could exist don’t, even when the taxpayer is using digital technology and filling out a tax return online. “You can’t even export your W-2 [data] into that document,” Robb says. Instead the taxpayer has to copy the numbers by hand.
That creates opportunities for error and reasons to worry, he says. Not all of those worries are based on probability, he adds. “Most people aren’t going to get audited, even though that’s a looming thing that people think about.”
The whole process can be so intimidating that there are people who qualify for refunds, but don’t file their tax returns and so miss out on them, says Robb.
Yet in many countries with an annual income tax, the system is almost the reverse of what happens in the U.S.
Taxpayers receive a form from the government that is already filled out. The taxpayer reviews the document and, if there is a disagreement about the bottom line, can typically challenge the government’s figures, presenting evidence to support a different conclusion.
It’s not that they have a flat tax — a system in which everyone pays the same percentage of their income regardless of how much they make every year. It’s the underlying process that is different.
Despite the complications of the U.S. tax code, Robb says the model of having a pre-filled government form that comes to the taxpayer could work in the U.S.
Uncle Sam already has most if not all the data needed for most people. “The federal government has an idea of what you should pay,” he says. But instead of telling the taxpayer, “they’re saying, ‘you tell us what you think you should owe.’”
Yet for the vast majority of taxpayers, that’s not necessary, Robb says. “It should just be so simple. Most people do not require that complex of a tax return.”
So why doesn’t the U.S. do things the way those other countries do?
“There are vested interests in the system being complicated,” says Robb — including makers of software like TurboTax and national tax preparation chains.
In 2017, the nonprofit investigative news site Pro Publica reported on the millions of dollars that Intuit, H&R Block and other players in the tax-preparation industry have spent on lobbying to prevent the federal government from offering a U.S. version of the model that is so popular elsewhere.
Don Moynihan, who teaches public policy at Georgetown University (and formerly at the University of Wisconsin’s Robert M. La Follette School of Public Affairs) wrote the sad story on his Substack site Thursday about a proposal to provide free electronic tax filing for everyone, advanced in 2001 by the administration of President George W. Bush, only to be “strangled by the private tax preparation industry under the guise of public-private partnership.”
Robb acknowledges that some people might be reluctant to embrace a system in which the Internal Revenue Service tells them what they owe instead of making them add it up for themselves. “But if they’re using accurate data and it’s data that’s available for you to cross check, that’s not a problem,” he observes.
But he sees little support for converting the system. “I don’t think it’s a clear enough issue for the voting public to put their weight behind that kind of change,” Robb says. Awareness — or lack of it — is one reason.
“I think if people realized it was as simple as clicking a key and the next day you’d get your tax refund, there would be a lot more demand for it,” Robb says. “This is a common consumer problem, where we have a vested interest that is very deliberately funding resources toward a goal,” and no counterbalancing group with the equivalent sort of clout.
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