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This pessimism is pretty popular, and it's just wrong. It's not about whether the U.S. government will "displace existing corporations." It's about whether a pu

by motbob 4y ago

This pessimism is pretty popular, and it's just wrong. It's not about whether the U.S. government will "displace existing corporations." It's about whether a publicly funded and developed solution to a problem is clearly better than a private solution. Should the U.S. have an official tax preparation system? That would sure save a lot of people a lot of money, but I'm personally grateful for the fact that a bunch of private companies have been spending a lot of dough trying to develop good online tax prep utilities. Self-service tax prep is in a much better place than it was 15 years ago because of the efforts of those private companies. And an official option for tax prep would undercut those efforts. (At this point, of course, it's high time for the IRS to create an official option, and they are moving towards that.) Congress is aware of the above concern. The lawmaking "meta" since the Reagan years is to not undercut the normal operations of a competitive market unless there's a clear reason to. But sometimes there are clear reasons to. That's why we have things like FDA rules that tell companies what can or cannot be labeled as "peanut butter" or "milk chocolate." It's why we strictly regulate the radio spectrum. It's why we have healthy anti-trust, anti-cartel, and anti-foreign-bribery laws. Congress understands traditional examples of market failures and is very interested in fixing them. But the tax prep industry, for example, is not an example of a market failure, so Congress is not excited about getting involved. Getting back to FedNow, creating a standardized payment system to be used throughout the financial industry is a prime example of fixing a market failure: the difficulty of coordination, and the obvious benefit of getting every bank onto the same payment system. So I am not especially pessimistic about the prospects of this system.

umvi 4y ago
> Should the U.S. have an official tax preparation system? That would sure save a lot of people a lot of money, Would it? Seems like a conflict of interest to me. Down the road the government might be tempted to abuse its control of both tax laws and ubiquitous tax preparation software. I think it would be better if: - Tax laws and tax law updates are required to be released in machine-readable format (i.e. JSON) using a machine-parsable protocol (i.e. converted from "English" to "Tax Grammar") - IRS was required to maintain a public API for submitting returns This would lower barrier-to-entry of tax filing software and weaken incumbents' (i.e. Intuit's) lobbying power. Furthermore, IRS is free to build a tool if they want, so long as it is both open source and dogfoods the public API and public tax law data that everyone else has access to.
- runako 4y ago
  > the government might be tempted to abuse its control of both tax laws and ubiquitous tax preparation software. Could you describe a scenario where this could be the case? What kind of things would abusive tax prep software do? Would it lie to get people to overpay? Why would the government take that approach instead of just levying directly from people's accounts and/or reducing their refunds?
  - nightski 4y ago
    Well the U.S. tax system is heavily dependent on deductions which the IRS often does not have information on. So I'd imagine a lot of people would go with the default when in reality they might be able to save money. That said, Trumps tax law greatly increased the standard deduction so it's not as big of an issue any more.
    - runako 4y ago
      > tax law greatly increased the standard deduction so it's not as big of an issue any more. As of 2019, only ~11% of filers itemized. It would be a good idea to have a public website where 90% of filers could do their taxes for free.
      - nightski 4y ago
        I agree but was just pointing out one method through which this could be turned against filers. If the standard deduction was greatly reduced it could cause taxpayers to pay more tax than they needed. Personally I hate the fact we have so many deductions. I'd love a simplified tax code but I think that would be a tough sell.
  - captainoats 4y ago
    The government is naturally incentivized to maximize revenue. Individuals are incentivized to pay as little tax as they can, legally. Private tax prep software is pretty aggressive about identifying all possible deductions to reported income. The government would not be as motivated in designing their own system. You can see this in the paper filing forms, they have detailed instructions, but almost nothing on how to reduce tax paid, besides things like the child tax credit and earned income tax credit.
hn_throwaway_99 4y ago
100% disagree with your comments on tax preparation. Something like 80%+ of tax payers could have their 1040s automatically generated by the government because they only have stuff like wage and bank interest income. The proposal was just to have the government send these taxpayers a summary that they can accept or amend, the default being they wouldn't have to do anything at all to file their taxes. Intuit et al fought tooth and nail against this, because they knew it would cost them big time. These companies aren't benefiting from "the free market", they are rent-seeking regulatory capture organizations.
- motbob 4y ago
  "Something like 80%+ of tax payers could have their 1040s automatically generated by the government[.] The proposal was just to have the government send these taxpayers a summary that they can accept or amend, the default being they wouldn't have to do anything at all to file their taxes." Sure, that sounds good on paper. But here's a list of people who would be hurt by this system unless they were sophisticated enough to realize that they should revise their return: - Most people with a kid - Most people supporting a relative - Most people supporting someone who has no income and lives with them - Most people who made charitable contributions in 2021 - Many people with a home energy deduction - Most people who participated in post-secondary education - Anyone in the gig economy That's a big list, and it's far from complete. So it's not clear that your proposed "do people's taxes, leave it up to them whether to acquiesce or not" plan is good for consumers overall.
  - SideburnsOfDoom 4y ago
    > So it's not clear that your proposed "do people's taxes, leave it up to them whether to acquiesce or not" plan is good for consumers overall. I disagree, if you want clarity, look at other countries (e.g. UK) that already do this kind of thing. There is no "how can we know?" argument to be made. And IMHO, It's so much better for consumers overall.
    - motbob 4y ago
pfranz 4y ago
> Self-service tax prep is in a much better place than it was 15 years ago because of the efforts of those private companies. I guess, if you're only looking at the US. My understanding of the history is very different. In 2001-2002, the US was already behind other countries since it had no e-file option. The IRS was considering an official tax prep service. Because Bush was in office and there was huge pushback from the tax prep industry, it was pitched that a public/private partnership would be the fastest way to "catch up." In 2019, ProPublica runs a story about TurboTax's shady behaviors hiding and up charging for what was agreed to be a free service. It should cover 70% of tax payers, but in practice is only used by 2-3%. To me, this looks like an example where the government explicitly tried not to replace a large, private industry and the result could only possibly benefit 30% of people (likely significantly fewer since much of that 30% will still require personal tax prep). Even after 20 years of fallout and very explicit bad-faith behavior, the threshold for change hasn't been crossed.

by motbob 4y ago

umvi 4y ago

> Should the U.S. have an official tax preparation system? That would sure save a lot of people a lot of money, Would it? Seems like a conflict of interest to me. Down the road the government might be tempted to abuse its control of both tax laws and ubiquitous tax preparation software. I think it would be better if: - Tax laws and tax law updates are required to be released in machine-readable format (i.e. JSON) using a machine-parsable protocol (i.e. converted from "English" to "Tax Grammar") - IRS was required to maintain a public API for submitting returns This would lower barrier-to-entry of tax filing software and weaken incumbents' (i.e. Intuit's) lobbying power. Furthermore, IRS is free to build a tool if they want, so long as it is both open source and dogfoods the public API and public tax law data that everyone else has access to.

runako 4y ago
> the government might be tempted to abuse its control of both tax laws and ubiquitous tax preparation software. Could you describe a scenario where this could be the case? What kind of things would abusive tax prep software do? Would it lie to get people to overpay? Why would the government take that approach instead of just levying directly from people's accounts and/or reducing their refunds?
- nightski 4y ago
  Well the U.S. tax system is heavily dependent on deductions which the IRS often does not have information on. So I'd imagine a lot of people would go with the default when in reality they might be able to save money. That said, Trumps tax law greatly increased the standard deduction so it's not as big of an issue any more.
  - runako 4y ago
    > tax law greatly increased the standard deduction so it's not as big of an issue any more. As of 2019, only ~11% of filers itemized. It would be a good idea to have a public website where 90% of filers could do their taxes for free.
    - nightski 4y ago
      I agree but was just pointing out one method through which this could be turned against filers. If the standard deduction was greatly reduced it could cause taxpayers to pay more tax than they needed. Personally I hate the fact we have so many deductions. I'd love a simplified tax code but I think that would be a tough sell.
- captainoats 4y ago
  The government is naturally incentivized to maximize revenue. Individuals are incentivized to pay as little tax as they can, legally. Private tax prep software is pretty aggressive about identifying all possible deductions to reported income. The government would not be as motivated in designing their own system. You can see this in the paper filing forms, they have detailed instructions, but almost nothing on how to reduce tax paid, besides things like the child tax credit and earned income tax credit.

hn_throwaway_99 4y ago

100% disagree with your comments on tax preparation. Something like 80%+ of tax payers could have their 1040s automatically generated by the government because they only have stuff like wage and bank interest income. The proposal was just to have the government send these taxpayers a summary that they can accept or amend, the default being they wouldn't have to do anything at all to file their taxes. Intuit et al fought tooth and nail against this, because they knew it would cost them big time. These companies aren't benefiting from "the free market", they are rent-seeking regulatory capture organizations.

motbob 4y ago
"Something like 80%+ of tax payers could have their 1040s automatically generated by the government[.] The proposal was just to have the government send these taxpayers a summary that they can accept or amend, the default being they wouldn't have to do anything at all to file their taxes." Sure, that sounds good on paper. But here's a list of people who would be hurt by this system unless they were sophisticated enough to realize that they should revise their return: - Most people with a kid - Most people supporting a relative - Most people supporting someone who has no income and lives with them - Most people who made charitable contributions in 2021 - Many people with a home energy deduction - Most people who participated in post-secondary education - Anyone in the gig economy That's a big list, and it's far from complete. So it's not clear that your proposed "do people's taxes, leave it up to them whether to acquiesce or not" plan is good for consumers overall.
- SideburnsOfDoom 4y ago
  > So it's not clear that your proposed "do people's taxes, leave it up to them whether to acquiesce or not" plan is good for consumers overall. I disagree, if you want clarity, look at other countries (e.g. UK) that already do this kind of thing. There is no "how can we know?" argument to be made. And IMHO, It's so much better for consumers overall.
  - motbob 4y ago

pfranz 4y ago

> Self-service tax prep is in a much better place than it was 15 years ago because of the efforts of those private companies. I guess, if you're only looking at the US. My understanding of the history is very different. In 2001-2002, the US was already behind other countries since it had no e-file option. The IRS was considering an official tax prep service. Because Bush was in office and there was huge pushback from the tax prep industry, it was pitched that a public/private partnership would be the fastest way to "catch up." In 2019, ProPublica runs a story about TurboTax's shady behaviors hiding and up charging for what was agreed to be a free service. It should cover 70% of tax payers, but in practice is only used by 2-3%. To me, this looks like an example where the government explicitly tried not to replace a large, private industry and the result could only possibly benefit 30% of people (likely significantly fewer since much of that 30% will still require personal tax prep). Even after 20 years of fallout and very explicit bad-faith behavior, the threshold for change hasn't been crossed.