6 ms·

This would just paper over the fact that the US tax code is an abomination of deductions and credits. It would not simplify any of the magic math; it would jus

This would just paper over the fact that the US tax code is an abomination of deductions and credits. It would not simplify any of the magic math; it would just make most people think they are getting the right credits. Would it actually give people all the deductions and credits they could get through a detailed analysis? I highly doubt it. TurboTax doesn't ask 1000 questions for fun; most of them matter because of the insanity of our tax code. It would probably put turbo-tax out of business though, this is true. The default, free, option is going to win against a paid product. All this will accomplish is making sure that tax preparation is back where it was two decades ago -- where the Actually Wealthy hire a person to do their taxes and get the right deductions, and everyone else gets stuck with an opaque bill which they can't afford to assess for accuracy. This is a far more regressive system than what we have now. Don't accuse me of being a TurboTax shill. I have nothing to do with them, besides doing many hours of complex taxes which would have cost far more in-person than with TurboTax (and no, I'm not under any circumstances blindly entrusting the IRS with correctly calculating ISO AMT nonsense.)

schwabacher 11y ago
"All this will accomplish is making sure that tax preparation is back where it was two decades ago -- where the Actually Wealthy hire a person to do their taxes and get the right deductions, and everyone else gets stuck with an opaque bill which they can't afford to assess for accuracy. This is a far more regressive system than what we have now." This is where it is now - plus the non wealthy end up paying TurboTax $200. This bill would save them the $200.
- MBCook 11y ago
  It would also provide a additional small incentive to the IRS to lobby harder to get the code simplified. Now they have to update another set of systems for each crazy change.
  - bcheung 11y ago
    They are only handling the simple cases for the free filing system. Basically only if you qualify for 1040EZ.
- Alupis 11y ago
  I think the average $200 figure is for folks paying a tax preparation service, not using HR Block software or TurboTax (both cost around $49 and give free fed e-files and usually 4 "free" state-files.)
- bpodgursky 11y ago
  A lot of fairly high income people pay for TurboTax. Billionaires of course have tax preparers -- but TurboTax moves the bar a LOT higher. > This bill would save them the $200. First, most people pay turbotax $50-100. $200 would be deluxe + 3 states, which is highly uncommon. And it's highly likely it would cost them MORE than $200 in credits they are not automatically given by the IRS. The IRS does not know what you donated to charity, properties you own which get credits for, educational tax credits etc. It will spit out a number with a refund, sure. But this change will take more from the lower-income and middle-income proportionately than from the wealthy.
  - Natsu 11y ago
    I thought the charities reported donations over $X to the IRS. Am I mistaken?
  - toomuchtodo 11y ago
    > The IRS does not know what you donated to charity, properties you own which get credits for, educational tax credits etc. But it could if provided with the data.
- 0xffff2 11y ago
  If you're paying TurboTax $200 a year to do your taxes, you're doing something seriously wrong.
CPLX 11y ago
> This would just paper over the fact that the US tax code is an abomination of deductions and credits. I understand the point you're making and it's a valid one, but that sentence really isn't actually true for most people. If you get your income from one job during the year there's an excellent chance you have almost no variables to work with. Maybe owning one piece of real estate or a dependent or two, but the standard deduction tends to wash out almost everything else for most people. What you're saying is somewhat true for most people who itemize deductions, but most people don't and have no reason to itemize deductions.
- vilhelm_s 11y ago
  I wonder if there are any statistics on which deductions are used by what percentage of people? I don't think any of them apply to me, as far as I can tell from the million questions the tax software asks.
  - entee 11y ago
    I'd love to find some of those too, but brief searching didn't yield anything. In general though, it seems some of the most popular itemized deductions are: 1.) Deduct state income tax 2.) Mortgage interest 3.) Child-oriented tax credits Most deductions seem to favor homeowners and families.
- bpodgursky 11y ago
  ~ 1/3 of people itemize. And this doesn't mean it's the richest 1/3 -- it's the 1/3 who have homes, children, and other real responsibilities which get credits. Middle class. The people who don't itemize have almost no burden right now; you can fill out a 1040EZ or use TurboTax free edition. The middle class is who is going to get screwed out of deductions.
  - toomuchtodo 11y ago
    > or use TurboTax free edition. Who do you think is subsidizing the free edition? It's time to kill third party tax products.
mjevans 11y ago
The problem is the complexity and inherent unfairness of the tax code (in the US anyway). Until we resolve that root cause anything else is like applying a bandaid to a severed vein. There are /many/ discussion threads about what such a resolution might be, some of which include Basic Income Guarantee / Universal Basic Income.
- AnimalMuppet 11y ago
  I fail to see how UBI will decrease the complexity of the tax code. It might help with the unfairness, but not the complexity.
  - rory096 11y ago
    Part of the reason the tax code is so complex is the goal of a progressive tax system where wealthier people pay a higher share of their income. A flat tax, while simpler, is regressive- everyone pays the same percentage. Couple a flat tax with an unconditional lump sum grant, however, and you get both progressivity and simplicity.
    - AnimalMuppet 11y ago
      Yes, if you change to a flat tax when you go to UBI. It would make sense, but... Congress.
    - harryh 11y ago
      > Part of the reason the tax code is so complex is the goal of a progressive tax system where wealthier people pay a higher share of their income. This is false. Almost none of the complexity of the tax code comes from this. The complexity comes from counting up how much income you have. After that it's a trivial calculation to determine your tax owed.
- adventured 11y ago
  Inherent unfairness? I'd love to see that argument laid out. The US has an extremely progressive tax code. The top 1% receives 19% of all income and pays 49% of all income taxes. The top 10% pays 82% of all income taxes. What exactly do you plan to do, to make it more fair? Most other developed countries have dramatically higher income taxes on their middle classes and have less progressive income tax distribution in terms of who pays. Which is why the US has roughly 50% higher median household disposable income than what Sweden, Britain, or Germany do: it's thanks to much lower taxes on the middle class (in those countries it's used for eg healthcare; in the US, people have a choice as to what they do with that disposable income). http://taxprof.typepad.com/taxprof_blog/2015/03/joint-tax-committee-the-top-1-receives-19-of-all-income-.html http://taxprof.typepad.com/taxprof_blog/2015/03/joint-tax-co...
ancap 11y ago
>US tax code is an abomination of deductions and credits Funny, I thought the part where they take your money was the evil part.
entee 11y ago
The tax code is this way because in practice everyone wants it to be this way. We spend through the tax code instead of directly paying for things because it's a lot easier to sell politically. People say some variation of, "Make my tax code simpler, but don't get rid of that deduction over there, it's important to me." There are literally billions of dollars spent making sure deductions stay exactly where they are every single year. Given that complexity and what I firmly believe to be its intractability, this is a hacky but OK solution to make taxes less awful for most people.
- cjslep 11y ago
  Also, the tax code is this way because software companies that produce tax filing software like Intuit lobby for it [0]. [0] http://techcrunch.com/2013/03/27/turbotax-maker-funnels-millions-to-lobby-against-easier-tax-returns/ http://techcrunch.com/2013/03/27/turbotax-maker-funnels-mill...
Natsu 11y ago
It already costs about $200 to do my taxes and deductions aren't worth the time it would cost me to itemize them. I'd much rather the government just give me a tax bill and then I could only worry about doing taxes myself if and only if it was actually worthwhile to do so.
fweespee_ch 11y ago
> This would just paper over the fact that the US tax code is an abomination of deductions and credits. It would not simplify any of the magic math; it would just make most people think they are getting the right credits. > It would probably put turbo-tax out of business though, this is true. The default, free, option is going to win against a paid product. That is largely what this is: https://turbotax.intuit.com/personal-taxes/online/free-edition.jsp https://turbotax.intuit.com/personal-taxes/online/free-editi...
kmkemp 11y ago
TurboTax and this proposal are just a consequence of a complex, manual process that needs simplification. I'm not sure how the government would make a better product than TurboTax without spending at least as much as they have. Subsidizing private tax software would probably only succeed in widening their profit margins. It seems like the only sane way to move forward is to simplify the tax code and process.
belltaco 11y ago
This is an example of the perfect being an enemy of good. This won't solve all problems, but for a large section of people, it will eliminate the needless guesswork. It has already been implemented in some European countries.
- abawany 11y ago
  That was the main reason for the submission. Time and again, I had read discussions here with admiration on how many European countries reduce the filing burden on citizens with simple requirements. AFAIK, this was the first time I had seen such an attempt in the US.
bsilvereagle 11y ago
> The default, free, option is going to win against a paid product. In some cases, free federal filing already exists! https://www.irs.gov/uac/Free-File:-Do-Your-Federal-Taxes-for-Free https://www.irs.gov/uac/Free-File:-Do-Your-Federal-Taxes-for...
deleted 11y ago
[deleted]
steego 11y ago
> All this will accomplish is making sure that tax preparation is back where it was two decades ago Nonsense. The tax preparation software did fine in the 80's and 90's when doing your taxes on your computer was a niche thing. Propping up a tax software industry for the benefit of the few people who benefit from it is a drag on society. Why should I subsidize the R&D of the software to handle your complex taxes?
gshulegaard 11y ago
I think your comment completely misses the target of the Bill. From the staff report linked in the article: " “During the term of this agreement,” the contract read, “the IRS will not compete with the Consortium in providing free, on-line tax return preparation and filing services to taxpayers.”10 The IRS would reaffirm its pledge to avoid developing tax preparation services in the 2005, 2009, 2014, and 2015 Free File renewal agreements.1 ... Today, fewer than 3% of eligible taxpayers participate in Free File, in large part because the program’s maze of eligibility requirements and product offerings are so difficult to navigate." The problem being targeted is the backdoor deal where private companies (TurboTax) _prevent_ the IRS from providing free filing services. They then turn around and obscure features and promote their paid services so that less than 3% of Americans who could and should use the "Free" tier end up paying for the paid product anyway. This legislation is two parts: First, it requires the IRS to develop free filing services to allow Americans to file taxes without having to use third-party services. This is to reduce the requirement that Americans have to share their personal information with third-party corporations in order to pay their _Federal_ taxes. It will also bring some much needed competition to the market where products like TurboTax can't just lock features required by certain users behind paywalls by creating a Federal, free base-line. Second, it _explicitly_ prohibits the IRS from entering into agreements with corporations which restrict itself from providing goods and services (specifically, "provide free online tax preparation or filing services"). The fact that corporations were able to do so in the past is disturbing, so this is a much needed change. The IRS is a governmental body for the people, it shouldn't be entering into agreements that benefit corporations and place burdens on the governed. Tax code is still going to be a mess, especially for the more complicated cases, but this has nothing to do with the focus of this bill.
paulcole 11y ago
> The default, free, option is going to win against a paid product. I think you're really oversimplifying things. A free option is great, but a paid option can still exist and thrive as long as it provides some kind of added value. In fact a free option can actually increase the market for a paid option as more people get frustrated by limitations of the free option and discover value in the paid option.
pzone 11y ago
This is the Grover Norquist / Tea Party position: it's important to keep tax preparation horrible so that people have a healthy hatred of paying taxes. I consider this an extremely ideological stance. Simplifying the tax code is an intractable problem. The tax code becomes complicated because of the very nature of congress, and I would say it is because of the very nature of taxes. The US is not the only country with a complex tax code! What is the likelihood that we would get some sort of sweeping reforms like the ones you're looking for? What is the likelihood that the reforms you are imagining are even possible at all? (If you're a self-critical type, how certain are you that the reforms in your imagination would really help people that much?) Passing a bill like this would be a boon for hundreds of millions of people. It is certain, it is immediate, it is politically achievable.

schwabacher 11y ago

"All this will accomplish is making sure that tax preparation is back where it was two decades ago -- where the Actually Wealthy hire a person to do their taxes and get the right deductions, and everyone else gets stuck with an opaque bill which they can't afford to assess for accuracy. This is a far more regressive system than what we have now." This is where it is now - plus the non wealthy end up paying TurboTax $200. This bill would save them the $200.

MBCook 11y ago
It would also provide a additional small incentive to the IRS to lobby harder to get the code simplified. Now they have to update another set of systems for each crazy change.
- bcheung 11y ago
  They are only handling the simple cases for the free filing system. Basically only if you qualify for 1040EZ.
Alupis 11y ago
I think the average $200 figure is for folks paying a tax preparation service, not using HR Block software or TurboTax (both cost around $49 and give free fed e-files and usually 4 "free" state-files.)
bpodgursky 11y ago
A lot of fairly high income people pay for TurboTax. Billionaires of course have tax preparers -- but TurboTax moves the bar a LOT higher. > This bill would save them the $200. First, most people pay turbotax $50-100. $200 would be deluxe + 3 states, which is highly uncommon. And it's highly likely it would cost them MORE than $200 in credits they are not automatically given by the IRS. The IRS does not know what you donated to charity, properties you own which get credits for, educational tax credits etc. It will spit out a number with a refund, sure. But this change will take more from the lower-income and middle-income proportionately than from the wealthy.
- Natsu 11y ago
  I thought the charities reported donations over $X to the IRS. Am I mistaken?
- toomuchtodo 11y ago
  > The IRS does not know what you donated to charity, properties you own which get credits for, educational tax credits etc. But it could if provided with the data.
0xffff2 11y ago
If you're paying TurboTax $200 a year to do your taxes, you're doing something seriously wrong.

CPLX 11y ago

> This would just paper over the fact that the US tax code is an abomination of deductions and credits. I understand the point you're making and it's a valid one, but that sentence really isn't actually true for most people. If you get your income from one job during the year there's an excellent chance you have almost no variables to work with. Maybe owning one piece of real estate or a dependent or two, but the standard deduction tends to wash out almost everything else for most people. What you're saying is somewhat true for most people who itemize deductions, but most people don't and have no reason to itemize deductions.

vilhelm_s 11y ago
I wonder if there are any statistics on which deductions are used by what percentage of people? I don't think any of them apply to me, as far as I can tell from the million questions the tax software asks.
- entee 11y ago
  I'd love to find some of those too, but brief searching didn't yield anything. In general though, it seems some of the most popular itemized deductions are: 1.) Deduct state income tax 2.) Mortgage interest 3.) Child-oriented tax credits Most deductions seem to favor homeowners and families.
bpodgursky 11y ago
~ 1/3 of people itemize. And this doesn't mean it's the richest 1/3 -- it's the 1/3 who have homes, children, and other real responsibilities which get credits. Middle class. The people who don't itemize have almost no burden right now; you can fill out a 1040EZ or use TurboTax free edition. The middle class is who is going to get screwed out of deductions.
- toomuchtodo 11y ago
  > or use TurboTax free edition. Who do you think is subsidizing the free edition? It's time to kill third party tax products.

mjevans 11y ago

The problem is the complexity and inherent unfairness of the tax code (in the US anyway). Until we resolve that root cause anything else is like applying a bandaid to a severed vein. There are /many/ discussion threads about what such a resolution might be, some of which include Basic Income Guarantee / Universal Basic Income.

AnimalMuppet 11y ago
I fail to see how UBI will decrease the complexity of the tax code. It might help with the unfairness, but not the complexity.
- rory096 11y ago
  Part of the reason the tax code is so complex is the goal of a progressive tax system where wealthier people pay a higher share of their income. A flat tax, while simpler, is regressive- everyone pays the same percentage. Couple a flat tax with an unconditional lump sum grant, however, and you get both progressivity and simplicity.
  - AnimalMuppet 11y ago
    Yes, if you change to a flat tax when you go to UBI. It would make sense, but... Congress.
  - harryh 11y ago
    > Part of the reason the tax code is so complex is the goal of a progressive tax system where wealthier people pay a higher share of their income. This is false. Almost none of the complexity of the tax code comes from this. The complexity comes from counting up how much income you have. After that it's a trivial calculation to determine your tax owed.
adventured 11y ago
Inherent unfairness? I'd love to see that argument laid out. The US has an extremely progressive tax code. The top 1% receives 19% of all income and pays 49% of all income taxes. The top 10% pays 82% of all income taxes. What exactly do you plan to do, to make it more fair? Most other developed countries have dramatically higher income taxes on their middle classes and have less progressive income tax distribution in terms of who pays. Which is why the US has roughly 50% higher median household disposable income than what Sweden, Britain, or Germany do: it's thanks to much lower taxes on the middle class (in those countries it's used for eg healthcare; in the US, people have a choice as to what they do with that disposable income). http://taxprof.typepad.com/taxprof_blog/2015/03/joint-tax-committee-the-top-1-receives-19-of-all-income-.html http://taxprof.typepad.com/taxprof_blog/2015/03/joint-tax-co...

ancap 11y ago

>US tax code is an abomination of deductions and credits Funny, I thought the part where they take your money was the evil part.

entee 11y ago

The tax code is this way because in practice everyone wants it to be this way. We spend through the tax code instead of directly paying for things because it's a lot easier to sell politically. People say some variation of, "Make my tax code simpler, but don't get rid of that deduction over there, it's important to me." There are literally billions of dollars spent making sure deductions stay exactly where they are every single year. Given that complexity and what I firmly believe to be its intractability, this is a hacky but OK solution to make taxes less awful for most people.

cjslep 11y ago
Also, the tax code is this way because software companies that produce tax filing software like Intuit lobby for it [0]. [0] http://techcrunch.com/2013/03/27/turbotax-maker-funnels-millions-to-lobby-against-easier-tax-returns/ http://techcrunch.com/2013/03/27/turbotax-maker-funnels-mill...

Natsu 11y ago

It already costs about $200 to do my taxes and deductions aren't worth the time it would cost me to itemize them. I'd much rather the government just give me a tax bill and then I could only worry about doing taxes myself if and only if it was actually worthwhile to do so.

fweespee_ch 11y ago

> This would just paper over the fact that the US tax code is an abomination of deductions and credits. It would not simplify any of the magic math; it would just make most people think they are getting the right credits. > It would probably put turbo-tax out of business though, this is true. The default, free, option is going to win against a paid product. That is largely what this is: https://turbotax.intuit.com/personal-taxes/online/free-edition.jsp https://turbotax.intuit.com/personal-taxes/online/free-editi...

kmkemp 11y ago

TurboTax and this proposal are just a consequence of a complex, manual process that needs simplification. I'm not sure how the government would make a better product than TurboTax without spending at least as much as they have. Subsidizing private tax software would probably only succeed in widening their profit margins. It seems like the only sane way to move forward is to simplify the tax code and process.

belltaco 11y ago

This is an example of the perfect being an enemy of good. This won't solve all problems, but for a large section of people, it will eliminate the needless guesswork. It has already been implemented in some European countries.

abawany 11y ago
That was the main reason for the submission. Time and again, I had read discussions here with admiration on how many European countries reduce the filing burden on citizens with simple requirements. AFAIK, this was the first time I had seen such an attempt in the US.

bsilvereagle 11y ago

> The default, free, option is going to win against a paid product. In some cases, free federal filing already exists! https://www.irs.gov/uac/Free-File:-Do-Your-Federal-Taxes-for-Free https://www.irs.gov/uac/Free-File:-Do-Your-Federal-Taxes-for...

deleted 11y ago

[deleted]

steego 11y ago

> All this will accomplish is making sure that tax preparation is back where it was two decades ago Nonsense. The tax preparation software did fine in the 80's and 90's when doing your taxes on your computer was a niche thing. Propping up a tax software industry for the benefit of the few people who benefit from it is a drag on society. Why should I subsidize the R&D of the software to handle your complex taxes?

gshulegaard 11y ago

I think your comment completely misses the target of the Bill. From the staff report linked in the article: " “During the term of this agreement,” the contract read, “the IRS will not compete with the Consortium in providing free, on-line tax return preparation and filing services to taxpayers.”10 The IRS would reaffirm its pledge to avoid developing tax preparation services in the 2005, 2009, 2014, and 2015 Free File renewal agreements.1 ... Today, fewer than 3% of eligible taxpayers participate in Free File, in large part because the program’s maze of eligibility requirements and product offerings are so difficult to navigate." The problem being targeted is the backdoor deal where private companies (TurboTax) _prevent_ the IRS from providing free filing services. They then turn around and obscure features and promote their paid services so that less than 3% of Americans who could and should use the "Free" tier end up paying for the paid product anyway. This legislation is two parts: First, it requires the IRS to develop free filing services to allow Americans to file taxes without having to use third-party services. This is to reduce the requirement that Americans have to share their personal information with third-party corporations in order to pay their _Federal_ taxes. It will also bring some much needed competition to the market where products like TurboTax can't just lock features required by certain users behind paywalls by creating a Federal, free base-line. Second, it _explicitly_ prohibits the IRS from entering into agreements with corporations which restrict itself from providing goods and services (specifically, "provide free online tax preparation or filing services"). The fact that corporations were able to do so in the past is disturbing, so this is a much needed change. The IRS is a governmental body for the people, it shouldn't be entering into agreements that benefit corporations and place burdens on the governed. Tax code is still going to be a mess, especially for the more complicated cases, but this has nothing to do with the focus of this bill.

paulcole 11y ago

> The default, free, option is going to win against a paid product. I think you're really oversimplifying things. A free option is great, but a paid option can still exist and thrive as long as it provides some kind of added value. In fact a free option can actually increase the market for a paid option as more people get frustrated by limitations of the free option and discover value in the paid option.

pzone 11y ago

This is the Grover Norquist / Tea Party position: it's important to keep tax preparation horrible so that people have a healthy hatred of paying taxes. I consider this an extremely ideological stance. Simplifying the tax code is an intractable problem. The tax code becomes complicated because of the very nature of congress, and I would say it is because of the very nature of taxes. The US is not the only country with a complex tax code! What is the likelihood that we would get some sort of sweeping reforms like the ones you're looking for? What is the likelihood that the reforms you are imagining are even possible at all? (If you're a self-critical type, how certain are you that the reforms in your imagination would really help people that much?) Passing a bill like this would be a boon for hundreds of millions of people. It is certain, it is immediate, it is politically achievable.