American politics has always involved competition, with elected officials vying to rally supporters behind various causes and ideas. At its best, this process produces important innovations in government. At its worst, it gives way to demagoguery, drowning out commonsense policy that could make a big difference for everyday Americans.
The current debate over funding for the Internal Revenue Service (IRS) is a prime example. Last year’s Inflation Reduction Act allocated badly needed funding to help the IRS fix a longstanding staffing shortage, modernize its technology and improve customer service. The law also set aside a small slice of that funding— about 0.02 percent — to study how a direct-file tax return system might work. The project has been a political football ever since.
Direct filing is a disarmingly simple idea. Given that the IRS requires you to file your tax returns every year if your income is over a certain threshold, it should also provide a free, online way for you to do it. After all, when you pay a parking ticket or renew your license, there’s typically no need to get a third party involved. Why should filing personal income tax returns be any different?
The idea has been proposed in various forms over the years by politicians from both parties, from Ronald Reagan to George W. Bush to Barack Obama. None of these presidents expected their proposals to be controversial — they just wanted to make tax filing cheaper and less time consuming. Yet, in each case, the tax preparation industry poured millions of dollars into lobbying to kill this commonsense idea before it could get off the ground.
Today, we live with the aftereffects. The average taxpayer spends close to 13 hours filling out their returns; collectively, Americans spend almost $11 billion on tax-preparation services annually. For the most part, we hate it! One survey found Americans would rather do jury duty (49 percent), spend the night in jail (16 percent), or swim with sharks (15 percent). Perhaps that’s why a recent study found that a large majority of us would be interested in a free, government-built tax filing option if such a choice existed.
So why doesn’t it?
The major tax preparation companies point to the Free File Alliance, a 20-year partnership between the IRS and the tax software industry. The alliance revolves around a simple bargain: the industry provides free filing support to low- and middle-income Americans and, in exchange, the government agreed not to build a free platform of its own.
Yet, recent years have seen just 4 percent of eligible taxpayers make use of the program, and independent reviewers have found Free File options to be difficult for taxpayers to navigate. Investigative reporting has also shown that these “free” options are often not free at all, with major companies like TurboTax using misleading marketing and confusing websites to trick consumers into paying up anyway.
These factors may explain why the government recently declined to renew the non-compete portion of the agreement, setting off alarms — and subsequent lobbying efforts — at the headquarters of TurboTax and H&R Block.
It doesn’t have to be this way. In most developed countries, such as Australia, filing your tax return is an efficient and straightforward task, like renewing your car registration or looking over your electric bill. Only in the United States do we insist on making this basic function of living in a democracy so costly, miserable and time consuming.
Filing tax returns will never be on anyone’s list of favorite things to do, but it also shouldn’t break the bank or people’s sanity. Americans deserve a variety of tax filing options to fit their circumstances, including one that is free and managed by the federal government. In addition to saving current filers vast amounts of time and money, a true simple direct filing option would open the doors to the millions of non-filers who miss out on benefits due to burdens that our current tax system fails to address.
Direct filing may not be the right choice for every taxpayer, but, as this recent working paper from Treasury officials and academics notes, there is no doubt that access to such a service would lower the stress, cost and burden of tax time for the many Americans who need it. And for those who have concerns about the government taking a more direct role in tax return filing and prefer privately provided software, there is no reason why that option can’t also continue to exist.
Direct file has the potential to benefit millions of taxpayers, but only if lawmakers remove politics and partisanship in favor of good, commonsense policy. We’re already witnessing the results of partisan infighting with the debt ceiling crisis. Let’s not let demagoguing politicians get in the way of making tax time less stressful and costly for millions of everyday Americans.
Leslie Book, a national authority on tax procedure and tax administration, is a professor at the Villanova Charles Widger School of Law and senior fellow of the Center for Taxpayer Rights.