Earlier this week, Congress passed a bill that makes it illegal for the Internal Revenue Service to ever develop its own online tax return program for American taxpayers. Advocates and progressive lawmakers have described this as a blow to consumers and a major win for corporations who have poised themselves to profit indefinitely off the U.S. tax system.
“This could be a disaster. It could be the final nail in the coffin of the idea of the IRS ever being able to create its own program,” a tax attorney told ProPublica. The publication’s feature delved into how tax prep software companies have been lobbying for years to protect their private enterprise; the two largest tax companies, Intuit and H&R Block, spent about $6.6 million last year.
New: Juuuust 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. https://t.co/bqeZ0Ri5Qj
— ProPublica (@propublica) April 9, 2019
Progressive Democratic members like Alexandria Ocasio-Cortez and Katie Hill — notably, two representatives who have been consistent advocates for their constituents since taking office last fall — considered voting against the bill due to this prohibitive piece of legislation. “In this freshman class, I and many of my colleagues were sent to reject corporate influence and stand up for people. This puts us in a difficult spot,” Hill told The Hill. She explained, though, that the rest of the bill contained too many important elements to be held up by the IRS bind. AOC also cited the net positive effect of the bill that will, among other things, expand consumer protections against debt collection agencies. “But long term, we should be looking at a solution where everyday people do not necessarily have to spend hours every year preparing tax returns when the majority of Americans have relatively simple and straightforward returns.”
For years, companies like Intuit and H&R Block have been offering their products through Free File, an online tax prep partnership with the IRS for people who make less than $66,000 in income. This offer has certainly helped to persuade legislators that a free, IRS-sponsored tax-program-for-all is unnecessary, since these companies’ privately-run programs give lower-income Americans the access they need to free tax software.
Considering how much money tax prep companies spend on advertising, you might be surprised to learn that over two-thirds of American taxpayers are actually eligible for their free products. However, only two percent of Americans take advantage of these freebies. Critics of Free File say that the tax prep companies have “deliberately underpromoted” the free offerings despite their reassurances to legislators that vulnerable taxpayers would not be harmed by banning the IRS from creating their own federally-run, free, and return-free tax programming. Jeremy Bearer-Friend, a tax law expert, told the Washington Post,
“The tax filing system has been captured by a lucrative industry and they guard it jealously.”
Other experts pointed out that in many European countries, paying taxes requires little to no effort, let alone math. One writer explained, “[In] many countries, there’s a system in which, at tax time, the government sends everyone a letter saying, ‘This is what our records showed you earned and paid in taxes this year.’ If it’s correct, you do nothing (or just sign it and send it back).”
Personally, I’d never heard of Free File, and I’ve even written a bit in the personal finance sphere! For years, I have been paying H&R Block to use their online tax prep program to file my state and federal taxes. The program has been helpful in pointing out potential discrepancies or deductions due to me to make sure that I am getting the biggest return possible… but not once did H&R Block ever point out that my adjusted gross income as a freelance writer has consistently made me eligible for their identical free filing program for users who make less than $66,000 a year. I guess I have been getting duped by the very issue that critics have had with private tax software companies.