This is a gift to the for-profit tax preparation industry. Or perhaps ‘gift’ is the wrong word, since Intuit (which makes Turbo Tax) and H&R Block have spent $6.6 million lobbying for this change. Pro Publica reports that the Taxpayer First Act — a wide-ranging bill — would, among other provisions, permanently bar the IRS from offering a free online tax filing system.
Now the story is a bit convoluted: The Free File Alliance is a 12-member industry consortium (which includes Intuit and H&R Block). This group (under an agreement with the IRS) offers free filing for low- and moderate-income taxpayers (earning up to $66,000/year). This freebie came about after the Office of Management and Budget (in the early 2000s) asked the IRS to develop a free electronic filing option for taxpayers. The IRS didn’t know how to do this, so in 2003 it made an agreement with the for-profit group: the Free File Alliance would offer free online tax prep services and in exchange the IRS would pledge to “not compete” with the group by offering its own online system.
Theoretically 70% of all taxpayers are eligible for Free File. But in fact only 3% of eligible taxpayers use the system. Why?
“Critics of the program say that companies use it as a cross-marketing tool to upsell paid products, that they have deliberately underpromoted the free option and that it leaves consumer data open to privacy breaches.” Hmm.
Many Democrats support the Free File system, including House Ways & Means Chair Richard Neal (D-MA). The bill is sponsored by Congressmen John Lewis (D-GA) and Mike Kelly (R-PA), with a companion bill in the Senate co-sponsored by Senators Chuck Grassley (R-IA) and Ron Wyden (D-OR).
There is an obvious, simple alternative to this agreement, as a previous article by Pro Publica notes: “Dozens of other countries, from the United Kingdom to Japan, have ways for at least some taxpayers to electronically file directly with the government.” The IRS could do this as well, except for the agreement it made with industry back in 2003 — an agreement that would be made permanent by this law.
Apparently, the Democratic Party is not yet captive of democratic socialism.