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Free, simple tax filing puts interest of Americans above corporate profits 

[1]
Image: Getty Creative

Paying taxes is our civic duty. The government’s duty is to make it as easy and inexpensive as possible for us to pay our taxes. But for too long, Congress has failed to uphold this responsibility, favoring instead corporations that profit from our need to file tax returns.

A bill recently introduced in Congress would fix this problem. An array of Democratic senators and representatives (including North Carolina’s G.K. Butterfield) have co-sponsored the Tax Filing Simplification Act, which would create a simple and free way for Americans to file their taxes. All other members of Congress should jump on board this common-sense reform.

Right now, it costs the average taxpayer about 13 hours and $240 every year to file a federal tax return, according to Internal Revenue Service figures [2].

People bear these costs and hassles even though, for many of them, the IRS already has all the information on hand to figure out their tax bill. Do you get a W-2 from your employer showing how much you got paid? So does the IRS. Do you get a 1099 form from the bank telling you much interest you earned? So does the IRS. The reality is that people often spend time and money simply to tell the IRS what it already knows.

For some families, the harm is greater.  The cost and complexity of tax filing deters many Americans struggling to get by on low wages from filing a tax return. While their low incomes may mean they aren’t required to file a tax return, it also means they lose out on tax credits designed to help their families make ends meet. In doing so, they miss out on several thousand dollars that would make their lives and that of their children a bit easier.

The problem of families not claiming tax credits, even though they qualify for them, is worse in Oregon [3] than just about every other state. North Carolina fares only slightly better.

The Tax Filing Simplification Act would require the IRS to give people easy access to wage and other data needed to file a tax return that the agency already has in its possession. Such a system of pre-filled tax returns is not new; other countries already do it this way, making filing taxes a zip for their people.

There’s more. This legislation would also allow taxpayers with simple returns to choose to have the government fully prepare their tax returns. And it would direct the IRS to create its own free, online tax preparation and filing service. Yes, free.

Why doesn’t our country make it free and easy for people to file their tax returns? Because a few big corporations profit from the current, dysfunctional system.

In 2002, the Bush administration proposed creating a free tax filing system, but a massive lobbying campaign by Intuit [4] — owner of TurboTax — killed the idea. Instead, the IRS agreed to allow a handful of corporations, in theory, to provide free tax filing software to as many as 70%  of tax filers.

In practice, few people access the free service. In 2021, less than 3% of tax filers used the free service. Intuit, for one, made it so that users could not find the free service [5], while steering low-income taxpayers to its paid service. Earlier this year, the company paid $141 million  to settle a claim [6] it had deceived users with promises of free tax filing — a slap on the wrist for a corporation that hauled in billions in profits over that period.

Ultimately, the deal between the IRS and the corporate tax preparers collapsed after the IRS put in place measures to rein in the corporate shenanigans [7]. H&R Block pulled out of the deal [8] in 2020, followed by Intuit’s exit in 2021 [9].

It’s long past due to put the interests of the American people above those of a few giant corporations profiting from our civic duty to pay taxes. The Tax Filing Simplification Act would save people money and hassles, while enabling many low-paid families to claim tax credits that improve their well-being.

It’s great that some members Congress are already fighting for this common-sense reform. The rest should get on board.

[10]Juan Carlos Ordóñez is the communications director of the Oregon Center for Public Policy and a contributor to the Oregon Capital Chronicle, which first published this essay.