Sens. Ron Wyden and Judd Gregg introduced what could be the most significant piece of tax reform in 25 years: the Bipartisan Tax Fairness and Simplification Act of 2010. It dramatically streamlines the tax system, eliminates key deductions, and — crucially for taxpayers — invites the IRS to prepare easy-to-understand tax returns for payers to read and sign.
I spoke with Roberton Williams, a senior fellow with the Tax Policy Center about the bill. He likes it, a lot. His first reason for liking it a lot is that it makes tax returns so easy that most taxpayers will be able to request the IRS to send them a one-page form to review and sign rather than go through tax preparer services.
But what does that mean for the H&R Blocks of the world? Williams explains:
What do you like most about this bill?
The whole idea of simplifying the tax system makes a lot of sense. A
lot of people don’t understand how the tax system works. They’re
worried about other people finding benefits they’re not finding. If you
can simplify it, you can get away from those problems.
The IRS knows everything they need to know for most tax papers. They
know your income from the W-2 and 1099. They know your mortgage
interest. Presumably they know the charitable organizations that you
give money to, because those organizations could report the amounts. If
you put money into a 401k or IRA, a bank can report that. That’ s most
of what you need. The information comes to the IRS. Most of us do have
straightforward tax returns. The IRS can do that. That would take a big
load off of people. As simple as it is, people should be able to look
at a simple tax form and say: “Yep, that’s what I earned. That’s what I
give to charities.” It takes a lot of pressure off people.
There’s a reason why almost 80 percent of us have other people do our
taxes. We don’t want to be hassled. It’s easier to let the software do
they job. I do TurboTax tax And I wonder why the numbers are what they
are. And I’m a tax expert!
Does this mean the end for companies like H&R Block? Some
companies make a living by wading through tax return language. If the
system is straightforward, we won’t need it interpreted.
It would not be good for the standpoint of the H&R Block’s of the
world. It would reduce the demand for their services. I think about 60
percent of tax returns are done by services like H&R or Liberty.
It’s a huge faction, because people know there are hidden extra
benefits and they want to get them.
But one of the things the IRS has found with preparers is that often
they don’t follow the letter of the law. There was a study I think in
Alabama where they went to a number of preparers with a fake tax case
that legally couldn’t qualify for the earned income tax credit. But
this particular tax preparer’s thing was to tell people, “We’ll get you
the EITC.” And guess what? In only one case did the tax preparers say,
“You don’t qualify for this credit.” You pay people a couple hundred
bucks for a tax return, you want a real return. You want a credit. If you don’t get it, there goes the business model.
Obviously H&R Block and companies like it won’t go down without a fight. Will they lobby against this? What can they say?
That they employ thousands of people doing something that is no longer
necessary? I don’t know. From a political perspective, you say, “We’ve
got to do it because you can’t trust big government.” That’s it. That’s
all you can say. That’s the only argument i can see.
{A fuller transcript of our interview, which breaks down the basics
and not-so-basics of the new major tax reform legislation is
forthcoming…}
