5 ms·

> a private system for the remaining taxpayers would have to cover its costs with only 10% of the revenue. Is it that hard? Americans filed about 260M returns

by smsm42 3y ago

> a private system for the remaining taxpayers would have to cover its costs with only 10% of the revenue. Is it that hard? Americans filed about 260M returns last year. 10% of it is 26M. Let's say you get only 10% of those - since you're not the only person on the market - to pay you $100 (if you save a significant amount on taxes, paying $100 for it would make sense, won't it?) - that's $260M, or about as much as the government says their whole system, for all 100% of taxpayers, would cost. If you can do better job than the government on the efficiency (not a very high bar), and you only have to support 1/10 of the volume the government does, I think these numbers look ok for you. > You can imagine how converting that into computer code is a non-trivial undertaking notwithstanding that it's public information. It is. But there are multiple businesses who already have been doing it for years, so it looks like a solvable problem.

AnthonyMouse 3y ago
> Let's say you get only 10% of those - since you're not the only person on the market - to pay you $100 (if you save a significant amount on taxes, paying $100 for it would make sense, won't it?) - that's $260M, or about as much as the government says their whole system, for all 100% of taxpayers, would cost. TurboTax is ~$39. Also, the cost of developing the system doesn't depend on how many people use it, and those are only the development costs, not anything else a business has to pay, like marketing, billing or interest on capital. Moreover, suppose a business could actually get away with charging $100 and that would be enough to cover their costs. Why would you want this as opposed to releasing the source code, which reduces their costs and allows them to get by charging $25, while driving the market price down to that level by reducing the barrier to entry? > It is. But there are multiple businesses who already have been doing it for years, so it looks like a solvable problem. That was when you don't have a taxpayer-subsidized competitor providing an almost-as-good service for free.
- smsm42 3y ago
  $39 is the cheapest offer (well, beyond free ones). If you want to cover your mortgage, your charity giving, savings, maybe a little stock investments, maybe some side gigs, then you very quickly get to $100. And of course state is extra (my tax return, if I choose to file with Intuit, would be at around $120 with current prices). It's not all people, for sure, but in those 10% that need non-trivial filing, those would be much more frequent that "one salary, nothing else" fold. For the latter - the pre-baked offer would be the way. BTW, that's the cheapest offer TurboTax now does, where you do all the work. They have full-service offerings now, there it could be 3-4x from that easily. So I don't think their business is much threatened. > That was when you don't have a taxpayer-subsidized competitor providing an almost-as-good service for free. They already have the platform and 99% of stuff implemented. The only thing they need to do is year-to-year updates. True, it's some work, but as I just shown, their potential market is in hundreds of millions of dollars. Every year, recurring. I think many VCs would look favorably at such potential - and here we're talking about already established companies with all sunk costs already processed and paid off, needing to spend just on maintenance and recurring updates. I don't think it's as bad as you think it is.
  - AnthonyMouse 3y ago
    > $39 is the cheapest offer (well, beyond free ones). If you want to cover your mortgage, your charity giving, savings, maybe a little stock investments, maybe some side gigs, then you very quickly get to $100. And of course state is extra (my tax return, if I choose to file with Intuit, would be at around $120 with current prices). That's the right now pricing, which is basically an attempt at price discrimination or bait and switch -- lots of people have common deductions like that and then they get sucked in with a free offer or $39 only to learn it's going to be more. But those are the kind of things a government system would be likely to handle well, because they actually are common deductions. Whereas what you'd need from a private system then is that they don't phrase the questions in such a way that it pressures you to be unnecessarily fearful and overpay your taxes, and strike the right balance in the interface between simplicity and complexity so that you actually find every deduction you're entitled to without having to spend many hours looking through forms. So then the customers are the people who have weird taxes, rather than the ones who have some mildly complex but fairly common deductions they can navigate in the free system. And yet not the people whose taxes are so weird or complicated that they end up going to a private accountant. That's not necessarily a huge market. > They already have the platform and 99% of stuff implemented. By "they" you mean an incumbent. What about anybody new who wants to enter the market once the dynamics are different?
    - smsm42 3y ago
      You are right that cheap lower layers are a funnel to guide people into expensive higher layers. But if the business model would be to cater only for 10% hardest cases, you don't need the funnel, since people coming to you already have a $100 need, so to say. You can't start with $100 price tag because people are going to ask - why would I pay $100 for just basic stuff? If you cater to top 10% then they answer is obvious - because your stuff is the most complex 10%! That's a different approach, for sure, but a viable one nevertheless. > That's not necessarily a huge market. It's not huge, but our tax system being a byzantine spaghetti mess it is, it's bigger than you think. I have relatively simple taxes, yet I certainly wouldn't want to do it all by myself and I do shell out over $100 each year to do it right now - so I probably would at least consider using such a system. The rest depends on how well it works, of course. > What about anybody new who wants to enter the market once the dynamics are different? That's no different from entering any other established market right now. Yes, incumbents have an advantage, this is always so, always have been so and always will remain so. It's hard to deal with incumbents - and yet it's possible, I myself am an evidence for it - despite Google being a giant of an incumbent, I am a paying client of Kagi, who are a startup in the space. I don't know if they will survive long term, but that's nothing new too.

by smsm42 3y ago

AnthonyMouse 3y ago

> Let's say you get only 10% of those - since you're not the only person on the market - to pay you $100 (if you save a significant amount on taxes, paying $100 for it would make sense, won't it?) - that's $260M, or about as much as the government says their whole system, for all 100% of taxpayers, would cost. TurboTax is ~$39. Also, the cost of developing the system doesn't depend on how many people use it, and those are only the development costs, not anything else a business has to pay, like marketing, billing or interest on capital. Moreover, suppose a business could actually get away with charging $100 and that would be enough to cover their costs. Why would you want this as opposed to releasing the source code, which reduces their costs and allows them to get by charging $25, while driving the market price down to that level by reducing the barrier to entry? > It is. But there are multiple businesses who already have been doing it for years, so it looks like a solvable problem. That was when you don't have a taxpayer-subsidized competitor providing an almost-as-good service for free.

smsm42 3y ago
$39 is the cheapest offer (well, beyond free ones). If you want to cover your mortgage, your charity giving, savings, maybe a little stock investments, maybe some side gigs, then you very quickly get to $100. And of course state is extra (my tax return, if I choose to file with Intuit, would be at around $120 with current prices). It's not all people, for sure, but in those 10% that need non-trivial filing, those would be much more frequent that "one salary, nothing else" fold. For the latter - the pre-baked offer would be the way. BTW, that's the cheapest offer TurboTax now does, where you do all the work. They have full-service offerings now, there it could be 3-4x from that easily. So I don't think their business is much threatened. > That was when you don't have a taxpayer-subsidized competitor providing an almost-as-good service for free. They already have the platform and 99% of stuff implemented. The only thing they need to do is year-to-year updates. True, it's some work, but as I just shown, their potential market is in hundreds of millions of dollars. Every year, recurring. I think many VCs would look favorably at such potential - and here we're talking about already established companies with all sunk costs already processed and paid off, needing to spend just on maintenance and recurring updates. I don't think it's as bad as you think it is.
- AnthonyMouse 3y ago
  > $39 is the cheapest offer (well, beyond free ones). If you want to cover your mortgage, your charity giving, savings, maybe a little stock investments, maybe some side gigs, then you very quickly get to $100. And of course state is extra (my tax return, if I choose to file with Intuit, would be at around $120 with current prices). That's the right now pricing, which is basically an attempt at price discrimination or bait and switch -- lots of people have common deductions like that and then they get sucked in with a free offer or $39 only to learn it's going to be more. But those are the kind of things a government system would be likely to handle well, because they actually are common deductions. Whereas what you'd need from a private system then is that they don't phrase the questions in such a way that it pressures you to be unnecessarily fearful and overpay your taxes, and strike the right balance in the interface between simplicity and complexity so that you actually find every deduction you're entitled to without having to spend many hours looking through forms. So then the customers are the people who have weird taxes, rather than the ones who have some mildly complex but fairly common deductions they can navigate in the free system. And yet not the people whose taxes are so weird or complicated that they end up going to a private accountant. That's not necessarily a huge market. > They already have the platform and 99% of stuff implemented. By "they" you mean an incumbent. What about anybody new who wants to enter the market once the dynamics are different?
  - smsm42 3y ago
    You are right that cheap lower layers are a funnel to guide people into expensive higher layers. But if the business model would be to cater only for 10% hardest cases, you don't need the funnel, since people coming to you already have a $100 need, so to say. You can't start with $100 price tag because people are going to ask - why would I pay $100 for just basic stuff? If you cater to top 10% then they answer is obvious - because your stuff is the most complex 10%! That's a different approach, for sure, but a viable one nevertheless. > That's not necessarily a huge market. It's not huge, but our tax system being a byzantine spaghetti mess it is, it's bigger than you think. I have relatively simple taxes, yet I certainly wouldn't want to do it all by myself and I do shell out over $100 each year to do it right now - so I probably would at least consider using such a system. The rest depends on how well it works, of course. > What about anybody new who wants to enter the market once the dynamics are different? That's no different from entering any other established market right now. Yes, incumbents have an advantage, this is always so, always have been so and always will remain so. It's hard to deal with incumbents - and yet it's possible, I myself am an evidence for it - despite Google being a giant of an incumbent, I am a paying client of Kagi, who are a startup in the space. I don't know if they will survive long term, but that's nothing new too.