TaxVox A Simple Tax Reform
Benjamin H. Harris
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While the Presidential candidates are campaigning on grandiose and often radical reforms to the current tax system, they are missing out on a simple commonsense reform that would make tax filing easier for millions of Americans.

 

The idea: the IRS could send pre-filled forms to taxpayers with relatively simple returns, such as those who take the standard deduction and only receive income from wages and salaries. Taxpayers would be given the opportunity to contest the information provided by the IRS and participation would be entirely optional; taxpayers could still file under the old system if they preferred. Such a plan would save taxpayers tens of billions of dollars in time, tax preparer costs, and aggravation. It would also be worth millions more to the IRS which would no longer have to correct the errors those taxpayers make. Everybody wins, except perhaps accountants and producers of tax preparation software.

 

In 1996, GAO found that roughly 50 million taxpayers would be able to file these returns.  It figured they could save as many as 155 million hours of paperwork, equivalent to the time spent on 75,000 full-time jobs.  Subsequent studies, including one by the Treasury Department and another by TPC’s William Gale and Treasury’s Janet Holtzblatt, have estimated the number of potential beneficiaries in a wide range between 8 million to 60 million depending on the structure of the reform.

This system is already in use at the state level. California, in 2005 and 2006, operated a "ReadyReturn" pilot program where a sample of taxpayers were provided with already-completed returns, and were given the option of verifying the return through mail or via the internet. Those taxpayers who used the system gave it high marks; almost all indicated they would use it in subsequent years. Despite heavy lobbying efforts by the producers of tax preparation software, and others, California is offering the program to taxpayers with simple returns for tax year 2007.

Return-free filing has received little attention in the campaign so far. Presidential candidates Barack Obama and John Edwards have endorsed the notion of a return-free filing system, but have not pushed it very actively or prominently in their campaigns.    

 

Of all the endorsements given to this plan, perhaps the loudest was hidden in a government report: in listing potential drawbacks to a return-free system, GAO noted that if such a system were implemented, “the tax preparation industry could be adversely affected.” Indeed. 

Primary topic Individual Taxes
Research Area Individual Taxes Campaigns, Proposals, and Reforms