Why doesn’t the IRS just send us a tax bill?

January 27, 2017

Dear Cecil:

Why do we have to fill out a 1040 form? The IRS knows what most people owe. Why don’t they just send us a bill or a refund?

Cecil replies:

Some big-time politicians have had that same idea. “There's no reason the IRS can't send Americans pre-filled tax forms to verify,” one presidential hopeful insisted in 2007. Well, apparently there was some reason, because that same guy spent the last eight years in the Oval Office and you’ll still be fumbling with a 1040 sometime between now and April 15. Circumstances partially excuse Barack Obama’s failure to deliver on his promise that “millions of Americans will be able to do their taxes in less than five minutes,” what with the economy collapsing shortly before he took office and all. But there’s a simpler explanation for why this commonsensical idea hasn’t prevailed in D.C.: Enough money has been spent to stop it from happening.

If you’re paid strictly in wages and, like nearly 70 percent of Americans, you claim the standard deduction rather than itemizing, you’re familiar with the drill: You get a W-2 from your employer listing what you were paid and how much tax was withheld. Next (unless you shell out for pro prep) you fill in some blanks, do some math, squint at a tax table, sign your name, drop the form in the mail, and worry that you screwed it up. And you very well may have — the IRS finds more than two million mistakes every year. These are spotted easily enough, because the IRS got the very same W-2 figures, did the same math, and filled out the same form.

All this redundancy can’t really be necessary, right? Sure enough, an alternative system, known as return-free filing, already exists in such forward-thinking locales as Denmark, Sweden, and Spain, where the government basically does just what you propose: they send out a bill for taxes due — or a refund of overpayment — for the recipient to approve. Even here in the U.S., you don’t have to compute your property taxes yourself, so why can’t you just kick back and wait for the IRS to figure out your income tax?

The closest we’ve come to an official answer to that question was in 2009, the year Obama took office. The Taxpayer Advocate Service of the IRS told Congress that Obama’s proposal was “not feasible at this time.” The government receives the necessary information too late in tax season, they claimed, so a return-free system would delay refunds and anger impatient taxpayers. Which sure sounds like a dodge — is the IRS, the one federal agency even less beloved than the TSA, really afraid people will be mad at it?

You’d figure typical deficit-hawk conservatives would be happy to save the money the IRS wastes every year confronting the American taxpayer’s inability to subtract correctly. And in fact Ronald Reagan himself endorsed return-free filing in 1985. But small-government zealot Grover Norquist and his group Americans for Tax Reform oppose efforts to streamline the filing system, preferring reforms that “enhance voluntary compliance.” A weaselly phrase, that — no arms would be twisted by offering a return-free option, and completing a 1040 hardly means you’re “volunteering” to pay taxes. The more likely reason for the resistance is that the proposed set-up would make the tax “simplification” Norquist favors — lopping off upper tax brackets, mainly — a much harder sell. If you’re trying to paint U.S. taxation as hopelessly burdensome, the last thing you want to see is the IRS transformed into an agency that just mails Americans a refund check every year.

Meanwhile, special-interest groups are in the trenches trying to shoot down return-free pilot plans. In 2005, California adopted a program called ReadyReturn, which allows qualified residents to opt for a pre-completed tax return rather than fill out their own. The state estimates that the new process has saved millions a year in prep fees and about a half a mil in government administrative costs, and taxpayers who’ve used the service are overwhelmingly pleased. Thing is, not many Californians take advantage of it — in 2012, only 90,000 out of the approximately one million eligible — and officials complain they've had a hard time getting the word out. That’s because software manufacturer Intuit, the maker of the prep app TurboTax, wants it that way: according to a 2013 investigation by the nonprofit journalism outfit ProPublica, the company spent more than $3 million in lobbying and campaign contributions between 2005 and 2009 fighting ReadyReturn. Intuit didn’t manage to kill the program outright, but the state’s budget for marketing it was cut to a dinky $10,000.

Perhaps wary of incurring the deep-pocketed wrath of Big Tax-Prep and its small-government allies, other states have seemingly been in no big hurry to follow California’s example. But the dream remains alive in D.C. — last April, Elizabeth Warren became the latest senator to propose (doomed) legislation introducing return-free filing. Somehow, I don’t see a lot of progress on this front any time soon. Being evidently opposed to paying taxes at all, our new president seems unlikely to expend much effort on making it simpler to do.

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