Tag Archives: irs

Institute for Justice Sues the IRS

A new IRS proposal to require licensing all tax preparers would put a lot of people out of work. Not everyone can afford to pay for classes, exams, fees, and continuing education courses. It would also artificially tip the competitive scales in favor of H&R Block and other big tax prep firms. So the Institute for Justice is suing. This video explains why (click here if the embedded video doesn’t work):

The video doesn’t make an important argument: If the IRS has the power to grant licenses, it also has the power to take them away. Tax preparers had better be careful not to fight too hard for their clients’ interests. Nice career you have there. Shame if anything were to happen to it.

Caleb Brown and I wrote about that angle in a piece for Investor’s Business Daily.

CEI Podcast for March 8, 2012: IRS Moves to Fund Foreign Dictators


Have a listen here.

A new IRS regulation hits the trifecta of enriching foreign dictators, helping them crush dissent, and would raise no revenue for the U.S. government. Vice President for Strategy Iain Murray explains. Unlike most other countries, the U.S. taxes income its citizens earn abroad. So, to encourage foreign banks to cooperate with the IRS, it is requiring U.S. banks to report to foreign countries, even dictatorships, on their citizens’ U.S. holdings. Governments can then use this information to find and punish dissenters.

Debating Return-Free Taxes: Rep. Jim Cooper Responds

Last week, I made the case against return-free taxes in an op-ed in The Hill. Under such a system, the IRS would prepare your taxes for you.

Rep. Jim Cooper, a Democrat from Tennessee, is the sponsor of a bill that would institute a return-free program. He responded to my criticisms in a letter to the editor that ran yesterday. He explains his position, and for some reason also throws an ad hominem my way. I’ve met Rep. Cooper and have worked with him and his staff on several occasions. We disagree on this issue, but overall I have a positive opinion of him. He is more philosophical and better-read than the average Congressman, but he doesn’t seem to quite understand my position. Rep. Cooper argues:

Arguments that a Simple Return is a regressive tax on the poor assume the government will take advantage of those who file basic returns by consistently erring in its own interest and hoping filers don’t notice. There are no facts to support this claim.

Actually, there are. I share one of them in my article:

That is exactly the case in the U.K., which uses a return-free system. The government has a 15 percent error rate, overwhelmingly in the government’s favor. In 2009, British taxpayers were overcharged the equivalent of $370 million. Those lucky enough to underpay still didn’t get a good deal. They are held liable for the government’s mistakes. Today, 1.4 million people are on the hook for an average of $2,200 each — a month’s pay for many people.

Here is Rep. Cooper’s closing flourish:

A powerful lobbying interest made up of accounting, advisory, and software firms wants to defeat this bill. Those companies are cashing in on taxpayers’ $2 billion annual misery. No wonder they don’t want a simpler system.

I can’t speak for powerful lobbying interests since I’m neither powerful nor a lobbyist. Nor do I have a personal stake in the bill. But even if I did, that would have nothing to do with whether the arguments I make are right or wrong. That depends on their actual merits. That Rep. Cooper dodges those merits means that he must believe his own arguments are weak. Why else the need to go personal?

There is also the fact that I do, in fact, favor a simpler tax system. Here’s the closing line from my article:

There are much better ways to reduce the 26-hour burden Americans face every year. The obvious solution is to simplify the 70,000-page tax code.

It’s possible to have even a progressive, multi-tiered income tax that takes up only a few pages. Real tax reform would eliminate almost all deductions, tax breaks, and other special favors. They encourage endless rent-seeking, and waste millions of man-hours that could be spent doing something productive instead.

A return-free system would do precisely nothing to simplify the tax code. It would merely keep that complexity out of sight, and out of mind. That makes reform harder, not easier. Rep. Cooper is proposing to treat a symptom. I encourage him to go after the root problem instead.

A Backdoor Tax on the Poor

For some time now, the IRS has been flirting with what’s called a return-free system. Instead of you having to sit down and fill out your 1040, the IRS would fill it out for you and tell you how much you owe.

It’s being touted as a time-saver. But it would also raise taxes on the poor. No matter how much personal information the IRS collects on someone, it is almost certain to miss deductions that person qualifies for.

There is also the tiny little conflict of interest that occurs when one’s tax collector is also one’s tax preparer. In an op-ed in The Hill, I explain why people of all political stripes should oppose a return-free program:

A return-free tax system has something for everyone to hate. Progressives should be up in arms over its disproportionately hurting the poor. So should privacy advocates; the IRS does quite enough snooping as it is. And conservatives should oppose return-free because, even though tax rates would remain unchanged, it is still a tax increase.

There are much better ways to reduce the 26-hour burden Americans face every year. The obvious solution is to simplify the 70,000-page tax code.

Read the whole thing here.

 

CEI Podcast — December 28, 2010: IRS as Tax Preparer?

Have a listen here.

Fellow in Regulatory Studies Ryan Young looks at the IRS’ proposal to save you time by doing your taxes for you. Because you would be liable for any of the IRS’ mistakes, you would still have to check over your return. This negates much of the time savings. It could also cost employers as much as $5 billion in increased reporting requirements. Then there is the conflict of interest between your collector also being your tax preparer.

Do You Want the IRS Doing Your Taxes?

The average American spends over 26 hours per year doing taxes. That’s too much. The obvious solution is to simplify the 70,000-page tax code. But that’s politically difficult. So Austan Goolsbee, among others, has an alternative idea: have the IRS do your taxes for you.

This return-free system is a bad idea for a lot of reasons. One of them is the obvious conflict of interest when your tax collector is also your tax preparer.

Another reason is that the IRS is not up to the task. As I explain in an op-ed being distributed by McClatchy News Services, the IRS rarely has all the information it needs to fill out an accurate return for any one individual, household, or business. People change jobs. They have kids. They get married, and sometimes divorced. They buy homes and cars. Who knows what kinds of deductions they qualify for? The IRS probably doesn’t.

And if the IRS makes a mistake on your return, you would be liable for it. If you want to stay on the right side of the law, you would have to calculate your own taxes anyway, to make sure the IRS got it right. So much for saving time.
Return-free systems have already been tried in California and the UK. Neither attempt can be called a success.
It is heartening that officials are looking for ways to reduce the burden of doing taxes. But a return-free system would treat only the symptom, and poorly at that. The root problem is an arcane, 70,000 page tax code. The solution is to simplify it.

CEI Podcast – November 11, 2010: Taxing New IRS Regulations

This week I switch from host to guest. Have a listen here.

Fellow in Regulatory Studies Ryan Young explains how an IRS proposal for mandatory certification of tax preparers would hurt consumers and taxpayers. It is one more example of how regulation can hurt competition. Large tax preparation firms would benefit at the expense of individuals and smaller firms who can’t afford the added regulatory burden.

Regulation of the Day 158: Preparing Taxes

The IRS wants to require all tax preparers to register with them, pass an exam, and take continuing education classes. Over at Investor’s Business Daily, Caleb Brown and I explain why that would hurt consumers and taxpayers. Our main points:

-Since the IRS has the power to revoke registrations, tax preparers will have to be careful not to advocate too aggressively for their clients.

-There are at least 600,000 unregistered preparers. Many of them are retirees. Others have jobs, but prepare taxes on the side to help make ends meet. Still others are volunteers. They give their services for free to people who can’t afford a tax preparer. How many will give up, rather than jump through the proposed regulatory hoops?

-Big firms — with more than 500 employees — pay $7,755 per employee per year to comply with federal regulations. Their smaller rivals have to pay a whopping $10,585 per employee per year. That’s a built-in competitive advantage of nearly $3,000 per employee, courtesy of Washington. No wonder so many businesses have D.C. offices these days.

-H&R Block alone spent nearly $1 million on lobbying in the last half of 2009, much of it pushing for these very tax-preparer regulations. It wants the deck stacked even further in its favor.

-The best solution to this problem is simplifying the tax code. There is no legitimate reason for the tax code to be so complicated that most people have to turn to others for help.

 

Value Added Tax? Bad Idea

Today’s Daily Caller has an article by Wayne Crews and I making the case against the VAT, which is becoming a popular idea in this age of trillion-dollar deficits. Our main points:

-It would require roughly doubling the size of the IRS. Enough said

-VATs are untransparent. Sales taxes show up on receipts. VATs don’t. Knowing how much we are taxed is a fundamental right that preserves our ability to challenge excess government in a constitutional republic. A VAT would take that away.

-VATs increase over time. At least they have in 20 of 29 OECD countries that have VATs.

-VATs are prone to special-interest abuse. Politically incorrect goods are easily hit with punitive rates. In Denmark, people pay roughly triple sticker price for cars, for example.

Regulation of the Day 132: Fire Sprinklers

The U.S. tax code stands at well over 100,000 pages. All but the hardiest of souls hire professionals to do their taxes for them. Cries for simplification grow every year.

How does Congress respond? By introducing legislation to “amend the Internal Revenue Code of 1986 to classify automatic fire sprinkler systems as 5-year property for purposes of depreciation.”