Every tax season, "good government" types and a compliant media trot out their evergreen stories about how wonderful it would be if the IRS prepared people's taxes for them. Implicit (sometimes not so implicit) in these stories is how evil corporations that sell tax preparation software are the only thing stopping this panacea from becoming a reality.
Conservatives, in particular, should see this ploy for what it clearly is: a money-grab by the government. Every third party that calls for IRS preparation of tax returns will readily tell you that it extracts more tax revenue for the government, and that this is a feature and not a bug.
That's the real reason the Left and the government class supports IRS-prepared tax returns: they want the government to be bigger, and that requires higher tax revenues. The fact that IRS tax preparation is understood by everyone to result in higher tax revenues exposes the conflict of interest that would be caused by IRS-prepared tax returns.
The IRS has one job, and one job only -- to collect taxes. It measures its success or failure in its ability to collect as much in taxes as possible. To ask the IRS to estimate the tax liability of a taxpayer is akin to asking an alcoholic how much they can have without crossing the line -- the answer will always be "more." To make the tax collector the tax preparer as well invites a clear conflict of interest on the part of the IRS.
To burst another bubble in this debate, poorer Americans and those with simple tax situations already have access to totally-free tax preparation that does not invite the conflict of interest described above.
Since 2003, sixteen private sector tax preparer companies have made their software available (free of charge) to taxpayers earning less than $57,000 per year (this number grows with inflation every year). All taxpayers have to do is go to IRS.gov, click on the "Free File Program" link, and they are on their way to getting their taxes done for free right on the IRS website. Do-it-yourselfers can also fill out forms directly on IRS.gov and send them directly into the agency.
In addition, there are 146 low-income taxpayer clinics sponsored by the IRS spread around the country. Anyone with income at less than 250 percent of the federal poverty line can resolve their back tax issues (most likely entirely for free) at these centers.
According to IRS data, the Free File Program and the Low Income Taxpayer Clinics provide completely free tax preparation and advice for 70 percent of taxpayers (100 million families) filing a tax return. This is all done completely free of charge for these families, and without resorting to the IRS preparing tax returns as a backdoor tax hike measure. To date, 37 million tax returns have used Free File, saving taxpayers over $129 million in IRS paper-filing costs and millions more in fees that would have been paid to tax prep companies.
What about the other 30 percent of taxpayers? In general, these taxpayers have increasingly-difficult tax returns that the IRS cannot accurately prepare, nor does the IRS claim that they can do so or would like to try. As income rises, complicating factors like side business income, portfolio income, rental properties, and itemized deductions come into play. The IRS, by their own admission, simply cannot prepare these people's taxes.
Taxpayers don't want the government preparing their tax returns. According to a report by the California Franchise Board, only 8 percent of eligible California taxpayers have chosen to have the state fill out their taxes for them ("Ready Return"). Greater than nine in ten eligible California families have said "thanks, but no thanks" to the government's offer to "help."
In sum, then, IRS tax preparation is a public policy solution in search of a public policy problem. Today, the bottom seven-tenths of income earners in America can get a completely free tax return prepared and have free legal tax advice. This is done because the tax preparation companies have already made their software available to most taxpayers for free--right on IRS.gov. The only taxpayers that need to pay for tax software are those whose returns have gotten too complex for the IRS to prepare in any event.
Tax preparation companies don't particularly want to be in the simple tax return business, anyway. It's the more complex tax returns that generate higher fees for them, and result in customers coming back year after year. They are happy to provide free tax preparation on IRS.gov using the Free File Program -- their real customer targets are higher up the income stream.
Furthermore, there's no evidence that the IRS has the competence or capacity to prepare returns even if they wanted to.
In the absence of a public policy problem, there is a motive instead. That motive is higher tax revenues. The media, and especially conservatives, should not fall for this ruse again this tax season.