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Edwards pushes tax simplification plan; tax preparation industry ready for battle |
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By Jonathan E. Kaplan
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Posted: 07/31/07 08:08 PM [ET] |
Democratic presidential candidate John Edwards has proposed a far-reaching tax program that would let the Internal Revenue Service enter the tax-preparation business, potentially setting up a clash with the tax-preparation industry.
Edwards delivered a major economic policy speech in Iowa last week, calling for a hike in the capital gains tax rate and taxes paid by private equity and hedge-fund managers.
While he did not address his plan to allow the IRS to prepare tax returns, Edwards highlighted the idea in the background information posted on his website.
None of the other presidential candidates have been as aggressive as Edwards on this issue. Last year, Sen. Barack Obama (D-Ill.), with Sen. Hillary Clinton (D-N.Y.), proposed legislation prohibiting tax software companies from selling data to third parties. The bill died.
Edwards has been quick to take clear, liberal stands on policy issues. He apologized after the 2004 election for his vote to authorize the war in Iraq and since has called on Congress to cut off funding for the war. He has championed ideas to reduce poverty and institute a universal health insurance program.
Edwards is not shying away from a fight with tax software companies who might scorn his proposal.
“One group of people who hates the idea: tax preparers,” Edwards said during a Podcast in April posted at his website.
http://johnedwards.com/news/press-releases/200700406-form-1/.
The Free File Alliance, a group of tax preparation software companies, such as H&R Block and Intuit, which makes TurboTax, have a contract with the IRS so taxpayers can file tax returns electronically with IRS-approved private sector vendors. The group argues that Edwards’s plan unfairly would force private companies to compete with the government and result in a huge expansion of government power.
In California, Intuit lobbied the California legislature last year to kill ReadyReturn, a government-run program that prepared tax returns for workers with one employer and simple deductions. But a state agency was able to revive the program without the legislature’s permission, and studies have found the program to be popular with those that have used it.
In 2005, the Free File Alliance pushed an amendment on the Senate floor to make sure the IRS would allow its member companies to offer their services at the IRS website. Treasury Department officials were so angered by the move that they tried to force the alliance’s members to sign a letter repudiating the amendment.
Edwards argued that his plan would improve efficiency for workers with simple tax returns and help low-income Americans who do not claim the Earned Income Tax Credit (EITC) but are eligible to receive it.
“I call it Form 1 because there is only one thing you need to do: sign it and return it,” Edwards said in the Podcast.
“The IRS should crunch the numbers itself and send taxpayers its calculation … paying taxes will be like paying a credit card bill. If you want to do it yourself or hire someone to do it, you can,” Edwards continued.
Stanford Law professor Joel Bankman, a longtime advocate of the idea, and an economist at the Brookings Institution, Bill Gale, advised Edwards on developing the idea.
Bankman said Edwards’s plan and California’s ReadyReturn program empower taxpayers because the government is forced to share data it already has. The taxpayer is under no obligation to use the data and can fix a discrepancy before it leads to bigger problems.
The tax software industry would rather leave the average taxpayer “confused and unhappy,” Bankman said.
Opponents of plans to let the IRS get into the tax preparation business are much more concerned now that Sen. Max Baucus (D-Mont.) is chairman of the Finance Committee.
The Free File Alliance wrote a letter to the Senate Finance Committee in May to express “its strong opposition” to proposals to allow the IRS to complete tax returns.
“Currently, the Free File program is working well,” the alliance wrote. “Unfortunately, the IRS web portal proposal would put all of this at risk by making the federal government a direct, government-subsidized competitor with the private sector and free market.”
While no bill has been introduced so far this year, Baucus will revisit the issue after the August recess, said spokeswoman Carol Guthrie.
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