Each year, Americans pay billions of dollars to Intuit, the corporate owner of TurboTax, to help them navigate the byzantine nightmare of filing a tax return. And each year, Intuit reinvests a small sliver of that revenue into political contributions and lobbying efforts to keep taxes pointlessly complicated.
The result is legislation like the Taxpayer First Act, which would make it illegal for the IRS to create its own free, online system to help Americans file their taxes. The measure passed the Democrat-controlled House Ways and Means Committee on April 2, and a companion bill is working its way through the Senate with support from both parties.
The bill also enjoys the support of the Free File Alliance, an industry group that represents tax prep companies like Intuit and H&R Block. In an SEC filing, one group member said that a free, public tax-filing system would “present a continued competitive threat to our business” that “may cause us to lose customers and revenue.”
The Art of the Deal
One of the Free File Alliance’s primary mechanisms for protecting its profits is a deal it struck with the IRS: The government agreed not to create a public tax filing system, and in exchange, tax prep companies offer their services for free to anyone who makes less than $66,000 a year.
However, only 3% of eligible taxpayers actually take advantage of the free filing offer, and critics point out that companies often use their free offers as lures to upsell customers to paid products.
With the passage of the Taxpayer First Act, the deal would be codified into law, thanks in part to the $6.6 million Intuit and H&R Block spent on lobbying, according to a Propublica investigation.
Ways and Means Committee chairman Richard Neal, who accepted $16,000 in contributions from Intuit and H&R Block over the last two election cycles before shepherding the Taxpayer First Act through his committee, claimed the bill “would help low- and moderate-income taxpayers.”
What Would Reagan Do?
In the mid-2000s, momentum was building around a radically different tax plan. Under this system, the IRS would fill out your tax return for you, using the tax data that it already collects from your employer. The agency would send you a pre-populated return in the mail, and you could either sign it and mail it back or choose to do it yourself if you thought there was a mistake.
Barack Obama supported the proposal during his tenure. Even Ronald Reagan proposed a similar idea in 1985, calling for a voluntary “return-free system” where “you would automatically receive your refund or a letter explaining any additional tax you owe” and “more than half of us would not even have to fill out a return.”
At least 36 countries have adopted some form of return-free filing, and many of their citizens have taken to Twitter to tell Americans how easy it could be to do your taxes.
In 2005, California tested a pilot return-free program at the state level, and in 2007, Republican Eric Cantor and Democrat Zoe Lofgren introduced a bill in the House of Representatives to adopt return-free filing nationally.
A Propublica investigation revealed that Intuit hired lobbying firms that recruited community leaders to pen op-eds opposing return-free filing, to create the appearance of a grassroots campaign against the proposal. Without revealing that they were lobbyists, employees of the firm gave community leaders misleading information about return-free filing and fed them pre-written editorials to submit to newspapers.
Propublica also reported that in the years that followed, Intuit spent $3 million on lobbying and political contributions in California and donated $26,000 each to Cantor and Lofgren and their political action committees. California and Congress both dropped their return-free proposals.
Something for everyone
In a nod to liberals, the Taxpayer First Act includes a provision that prevents the IRS from hiring private debt collectors to hound poor people for back taxes. And as Vox explains, anti-tax conservatives have an incentive to keep taxes infuriating, which makes voters more likely to oppose taxes.
To get a sense for the bill’s bipartisan support, consider its unlikely pair of co-sponsors: Mike Kelly, a Republican who once claimed Barack Obama was running a “shadow government” to undermine Donald Trump, and John Lewis, a Democrat and civil rights champion who once marched into Selma with Martin Luther King, Jr.
However, the bill may expose a generational divide between established Democrats like Lewis and progressive newcomers like Alexandria Ocasio-Cortez. Her policy director, Dan Riffle, made his disdain for the Taxpayer First Act clear on Twitter this week: