Senseless Hassle

Dean Baker has an excellent idea that would save money, save time, and reduce anxiety.

“There’s no reason—other than corruption—to oppose an ‘entirely doable reform that would save tens of billions of dollars a year and save people a huge amount of time and anxiety’. There’s a battle ahead—it’s the people on one side and the tax-preparation industry on the other.”

Dean Baker is a very smart and good economist who has proposed many excellent ideas that are unpopular due to the fact that these ideas would harm various entrenched interests—one person’s waste is another person’s profit, so you can understand why entrenched interests oppose efficiency.

Baker has an excellent analysis about how we could dramatically improve corporate taxation—I hope that Baker’s analysis on this front actually becomes mainstream and actually becomes something that progressive politicians talk about.

Baker’s Argument Regarding Government Preparation of Tax Returns

Baker also has an idea about personal taxation. Baker has a 30 March 2021 piece—that everyone should read—where he says that “government preparation of tax returns” is an example of a policy where there’s “no other side”.

It’s a “simple” idea—instead of “having taxpayers struggle with their returns every year”, the IRS “would fill out a return for them, based on the data it already has on file about the person’s income and family size”. The “form would be sent out each year for review”—people could (A) “accept the information as correct” and get the indicated refund or pay the additional taxes, but people could also (B) “contest the I.R.S. calculation by providing documentation showing that it was incorrect”.

This reform would be a big deal in terms of saving people money—currently “people pay over $27 billion a year to have their tax returns prepared, most of which could be saved if the I.R.S. prepared tax returns for people”. That’s a significant amount—$27 billion is “$200 per household”, or 0.13% of GDP, or “$300 billion over 10 years”.

This reform would also be a big deal in terms of saving time and reducing anxiety—people “spend hours working over their returns and many have anxiety about filling them out incorrectly and the potential consequences”, so the the instant elimination of almost “all of this” hassle would save people time and get rid of unnecessary anxiety. And it’s possible that this reform’s primary benefit will turn out to be time-related and anxiety-related, even though the financial benefit will be important too.

Several “European countries have been doing this for decades, and they are not that much smarter than we are”—this is an “entirely doable reform that would save tens of billions of dollars a year and save people a huge amount of time and anxiety”.

So why doesn’t this straightforward and commonsensical reform happen? The “obvious reason” is the tax-preparation industry’s political power—“NPR’s Planet Money had a fascinating piece” in 2017 about the tax-preparation industry’s battle against “an effort to have California’s revenue service prepare people’s state income tax for them”. The tax-preparation industry fought that effort “with all guns blazing”—they “were undoubtedly concerned about not only losing the market for preparing California’s state taxes but also the precedent this could set for the country as a whole”. There was “widespread bipartisan support” for California’s effort—despite that bipartisan support, the legislation that passed was “very watered-down” and “would only benefit people too poor to use tax services anyhow”.

Efforts like California’s “could help a huge swath of the population” and would only hurt “a relatively small industry that provides no inherent benefit to society”.

The Battle

So that’s what Baker says in his piece. And I think that Baker’s argument makes sense—this seems to be yet another case where an entrenched interest wants to maintain profitable inefficiency. There’s no reason—other than corruption—to oppose an “entirely doable reform that would save tens of billions of dollars a year and save people a huge amount of time and anxiety”. There’s a battle ahead—it’s the people on one side and the tax-preparation industry on the other.