Why the IRS Should Automatically Fill In Returns With What It Knows 613
theodp writes "An article in the NY Times begins, 'In the digital age, filing income tax returns should be a snap. Important data from employers and financial institutions has already been sent to government computers. Yet taxpayers are still required to perform the chore of preparing a return from scratch, in many cases paying a software company for the privilege.' Why, if your needs are simple, can't you just download forms pre-filled with whatever data the IRS has received about you, make any necessary adjustments, and automatically get the IRS calculation of your taxes? Sounds reasonable, but the IRS rejected the President's proposal to give taxpayers the option to do so as 'not feasible at this time' due to delays in the receipt of W-2 and 1099 data. However, California managed to offer a pre-filled state tax return, which cost only 34 cents to process compared to $2.59 to process a traditional paper return. Despite the success of the pilot, meager funds have been allotted for the program due to the strength of its political opponents — 'principally, Intuit' — according to the state controller. Intuit argues it would be a 'conflict of interest for government to be both tax collector and tax preparer.'"
Why they shouldn't.. (Score:1, Insightful)
Because we would find out how poor the government is about actually keeping track of data..
Seriously.. you'd probably log in to find that you have 27 kids and are 3 years of age.. and your income is the same as your zip code..
Conflict? (Score:5, Insightful)
Intuit would probably argue that it's a conflict of interest to be both a tax payer and tax preparer.
An invitation to defraud (Score:1, Insightful)
If the IRS were to list everything it knows, wouldn't that be an invitation to cheat on your taxes? As it stands, we have an incentive to report everything, because if the IRS knows about income and we don't include it on our 1040, we get busted. But if the IRS tells us what it knows, many (if not most) people would simply pay the tax on that, and neglect to report the rest.
Beneficial to Be Difficult (Score:5, Insightful)
Leave it up to the IRS -- they probably have it figured out that if they pre-fill items on forms, that means less error and less money. Plus, this gives them more opportunity to audit and assess fees. Whee!
Re:Why they shouldn't.. (Score:3, Insightful)
Seems to me it would be good to find out if the government thinks such things... although the hassle of correcting them may not be worth it. For years, the government sent mail to me as Mrs., despite the fact that my first name is David. The hassle of convincing them that I was actually Mr. took about 2 years.
Of course, here in Canada we get a $100 monthly benefit for each child. If the government thinks I have 27 kids, more power to them!
Re:An invitation to defraud (Score:3, Insightful)
Except it will be the same situation - say, the employer sends in the information too late to make it onto your prefilled form, you cheat and don't pay taxes on it, and then the IRS gets the paperwork and reviews your file. You'll still get busted, just with less paperwork ahead of time!
Re:Conflict? (Score:4, Insightful)
Almost every year about this time I post some sort of rant about how wasteful it is that we don't even have a free, official online tax-filing website. It would save filers tons of time, it would save the IRS tons of money. But the tax preparers don't care about that (after all, $1 of intentional government inefficiency is 25 cents of income for them) and somehow, though I can't figure out how, this tiny special interest has the power to dictate government policy.
Increases Fraud (Score:5, Insightful)
If the IRS pre-fills what the government knows about on the form, then that tells you what the government doesn't know about, and thus can safely be omitted. If you get a blank form, there's always the risk that the government knows about your offshore account and will prosecute you for omitting it.
Re:Funny that you mention California (Score:3, Insightful)
Don't blame others when you dropped the ball.
Your argument is that even though California had all the data to know that I didn't owe them the money, it's my fault? Blaming the victim is not only wrong, but will win you no friends.
In US private companies do this, only gov't can't (Score:4, Insightful)
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Re:works fine in Sweden (Score:5, Insightful)
Whilst I don't live in Sweden (I'm in the UK), I have to ask quite what your point is?
The Swedes may pay more in taxes, but in return get free healthcare, good roads, low crime, free schooling and university, (i believe) free (or heavily subsidised) childcare, efficient public transport, and much more.
They're also very highly rated in terms of their low wealth disparity (road fines for example are based on a percentage of your annual income so that a rockstar in a ferrari feels the same sting in their speeding ticket as does a poor person in a skoda), and human development index.
I could go on. The key point is that nations all make decisions about their priorities - the US believes in waging war and keeping the poor unhealthy and uneducated, other nations do not.
tl;dr - high taxes are worth paying if you get good services in return. Think of Sweden as the 'Apple' of nations, versus the 'Windows Me' of the USA.
What do you think happens today? (Score:5, Insightful)
Look, it's not like the government takes my word for it on most of the numbers I submit, anyway. If I put in the wrong number from my W-2 or W-9, they replace it with the right number, and either send me the bill or deduct from my account if I underpaid. So if they were consistently lousy with their records, this would be happening all the time.
I once got a letter from the IRS informing me that I didn't report interest income from a bank account I forgot about because it had so little money in it, so since I'd payed by direct deposit they just deducted the $0.15 from my account.
Another time I got a digit wrong on my W-2 amount, and the IRS informed me that they'd corrected the amount and credited me with the $400 I didn't need to pay, and if I thought this was an error to please call them (even if I thought it was, would I?) They do the same thing for math errors you make.
Anyway, my point is, for most of the basic things that you put on a 1040 in a boring year, the government already knows and more to the point already considers the numbers they have to be authoritative unless disputed.
So... My employer and banks still send me the tax info they usually do, the gov sends me their numbers and calculated tax liability, and if it's all right -- which it probably will be, the gov gets their numbers from the same banks and employers I do after all -- then I just pay it and am done with it. If it's not you do the 1040-Difficult like normal. I'm not seeing the huge problem here.
Re:works fine in Sweden (Score:1, Insightful)
The Swedes may pay more in taxes, but in return get free healthcare, good roads, low crime, free schooling and university, (i believe) free (or heavily subsidised) childcare, efficient public transport, and much more.
Which means that healthy people who don't drive much and are long-ago graduates with no children pay to support people who want to freeload off the government.
Seriously, the #1 problem with all government spending is that it is controlled by various special interests and tends to take the most money from people that are the most self-sufficient and independant, while creating a large class of people who feel they deserve money from the government just because they are alive.
There only difference between the stereotypical welfare mother having another child for the money and the RIAA is that the RIAA is getting millions from their ability to work the laws in their favor. It's the old punchline: "we've already determined what you are...now we're just haggling over price". Both are screwing the government for money.
Why they WON'T (Score:5, Insightful)
Re:Conflict? (Score:3, Insightful)
Is American consumerism so out of control we take out loans on anticipated income now, in order to spend it as soon as possible (with extra fees tacked on due to interest / finance charges) ?
I wonder what happens to consumers who take said loans if the IRS "corrects" their return and eliminates their refund.
I guess they bought their fancy toys/doodads by the time that happens though, and they can default on their anticipation loan in the same way they stopped paying their credit card bills and mortage; however.
Re:legitimacy of Taxes (Score:3, Insightful)
Re:This is how it's done where I'm from... (Score:3, Insightful)
I run a small business and we get nothing but 1099s (from our clients and for our contractors). It's not that hard to pay quarterly taxes. 'How hard' is it to pay quarterly taxes 4 times a year rather than just once? I know roughly what my tax rate is and I set that aside. I don't need Big Brother to run a payment plan for me.
Re:Beneficial to Be Difficult (Score:4, Insightful)
"But the government's not completely stupid -- if it was more beneficial, financially, to make the tax code simple, they would have done it years ago, IMHO."
The tax code isn't simple because WE don't want it so. That's right, you and me, want it complex. Well, not exactly. We want deductions for home loan interest, education, and our pet projects. So does everybody else. Congress obliges. Hence the massive and complex tax code.
A simple tax code would have modifications before the ink was dried. In the end, if people don't like the complex forms, they should stop using them. I've filled out many business related forms and found that they are only as complex as you want to make them. If you want to eke out the last penny of tax savings, go ahead. Just don't whine about the effort. Do you really think that if the tax code is simplified that you would pay less in taxes?
Re:intuit not thinking (Score:3, Insightful)
You know, if Intuit were really smart they wouldn't fight this...but rather got to the IRS and ask, "how can we be contracted to help you."
They'd probably make more. ...
Ah! A proposal to bring back tax farming! (Or actually a suggestion that it would fit into Intuit's corporate strategy to bring it back.)
This privatization of the tax system (And we all know that "privatization" is always a Good Thing! Right?) is one of the things that brought on the French Revolution and sent tax farmers to the guillotines. Can we just move directly to that latter stage? Intuit's executive suite sounds ready for a visit from the Committee of Public Safety right now!
Re:works fine in Sweden (Score:5, Insightful)
Which means that healthy people...
Yeah, because you just know you'll never get cancer or get hit by a car. Or maybe you've got some special ability to plan this not to happen right after you got laid off from a job?
...who don't drive much...
Taxes also pay for other pieces of infrastructure including bicycle paths and subsidies for public transport.
...and are long-ago graduates...
"Hey! I got my free cake courtesy of my parents' generation, now why should I pay for the next generation's free cake?!"
...with no children...
Ok, you may have a point here, were it not for a concept known as "solidarity" (look it up, the word is in practically every dictionary).
...pay to support people who want to freeload off the government.
Most people who are receiving more money than they're contributing tend to feel pretty bad about this but most of the time it's also not as easy as "oh well I guess I'll stop having cancer/being paralyzed/being unemployed and start paying more taxes!". The current swedish government did some amazing arithmetics prior to the last election and claimed over and over and over again that the reason unemployment was so high wasn't because there weren't enough jobs but because those who were unemployed simply weren't looking for jobs hard enough, naturally they ignored people pointing out that all available numbers showed that for every available job there were something like 4-5 unemployed people, kind of hard to get rid of unemployment just by "trying harder to get a job" under those circumstances...
/Mikael
Re:What do you think happens today? (Score:3, Insightful)
So let me see if I get this straight...
The current system allows a taxpayer to be dishonest, but catches him if he is.
The proposed change prevents a taxpayer from being dishonest (by informing him of what the IRS already knows of his finances), and only gives him a chance to correct the records.
So how is catching taxpayer dishonesty an advantage, again?
Re:Conflict? (Score:3, Insightful)
Really? I can prepare my own taxes and file them electronically without paying anybody a cent, regardless of my income level or what forms I am filing?
Can you give a reference for this? The last time I checked the best you could do is have the government pick up the filing tab if your income fell into 1040EZ range. No doubt there would be other limitations like standard deduction only/etc.
My state, on the other hand, lets me file electronically over the web. I don't need to pay for software, or services, or whatever. Now, the web interface is fairly minimalistic, but it certainly involves no more work than filling out the paper forms.
I haven't filed electronically in years, despite using software to prepare my returns. I refuse to pay money to make the IRS's job easier - I manage my withholding anyway so that they never owe me a dime anyway - so if it takes them to June to cash my check so much the better.
The IRS could create a web filing system that was free to use, and even after paying for the software development they'd make the cost back the same year with the reduced volume of paper.
Re:We've had that for years in Norway (Score:3, Insightful)
We are in fact rather suspicious of data storage and in favor of privacy protection, right now for example there's a debate on EUs data storage directive.
People in the US think they're so advanced when it comes to privacy protection that they become blind towards what real privacy means in this century. While they are raging against the government surveillance boogyman private companies are trading between themselves databases of their names, addresses, SSNs, phone numbers, family, shopping habits, color of their underwear and what not with no restrictions.
Ok... I'm not saying the government should have free reign to build databases on its citizens. Yet what you Americans seem to forget is that the same needs to apply to private companies, especially since fraud and misuse of information is more likely to happen due to leaks of information from unregulated private companies.
The storage of the information in the parent post is tightly regulated in Norway by the Data Inspectorate. You need special dispensation in the law to be allowed to store such sensitive information, and it doesn't matter if you're a private company or governmental organization. And storing information you strictly don't need or having lax security means they'll demand answers or else.
You guys can keep that paranoia of governments for your selves.
Re:works fine in Sweden (Score:4, Insightful)
[m]ost people who are receiving more money than they're contributing tend to feel pretty bad about this.
That is not a given in the US. It has been my experience that most Americans I know who are big-government, welfare-state liberals grew up in places where government works. By contrast, most of the small-government, go-it-alone conservatives grew up in places where it doesn't. Don't forget that not all governments work...
Re:Form 4070 (Score:3, Insightful)
If it's an automated system, yes. When you have a $10 check, the IRS assumes automatically that the server received a $1.50 tip - regardless of whether they got a $2 tip or a $.50 tip. At the end of their shift, they are given the opportunity to declare their tips - it's common practice to accept the 15% default as your declaration unless you're a horrible server; but declaring your true 5% will also flag the management system that you're not getting tipped correctly, so they'll usually pull you in for retraining or dismissal. It's a double-edged sword - lose your wages to the IRS or lose your job... At any rate, the tips are taxed and the taxes are deducted from the server's check at the end of the week, so it's in their best interest to declare the 15% and "forget" any discrepancy.
Re:Fair Tax (Score:3, Insightful)
Yes, LOW. Stop it using these stupid "X% of total tax" things make it look like the wealthy are unfairly taxed. All it does is show that 1% of people have 25% of the total assets. Income inequality is fine, but don't piss on the poor and tell them it's raining. If people pay the same share regardless of their income or assets then it's regressive and hurts people who make less.
This isn't splitting a restaurant bill, where you only consume the portion you pay for.
If you're going camping with your kids, you don't make them carry 1/4th of the total load and break their backs while you whistle Dixie, you give them a load proportional to their ability to carry it. That's because you are sharing a burden together that benefits everyone.