The IRS is in no position to do your taxes

Every year, Americans struggle to comply with the complex and confusing tax code. Americans collectively spent an estimated 1.9 billion hours filing their individual tax returns in 2020. Taxpayers also incur out-of-pocket costs of about $36 billion, or $230 per average taxpayer.

Progressives routinely say that there is a simple solution to this tax complexity — have the government create a tax preparation “return-free file” system. 

While it may sound like a reasonable solution to tax complexity — there are numerous problems with creating and implementing this system. It would be near impossible for the government to administer this system with the plethora of tax credits and deductions that exist, and it would require Americans to disclose more private information to the government creating the potential for privacy violations.

It would also create opportunities for the IRS to further abuse its power. 

Our current tax system is known as a voluntary system of compliance as Americans are responsible for filling out their own tax returns. However, progressives like Sen. Bernie Sanders (I-Vt.), Sen. Elizabeth Warren (D-Mass.) and Rep. Alexandria Ocasio-Cortez (D-N.Y.) want to replace this with a system where the government both assesses and files taxes for Americans.

There are many reasons to be concerned with this proposal. 

For one, a government tax preparation system is a conflict of interest. Under a system of government-run tax preparation, the IRS would tell you how much you owe and give you the opportunity to contest. This would give the government an incentive to overcharge or withhold information from taxpayers. Even if you trust federal bureaucrats to fairly administer this new system, it is not hard to see how errors in the tax preparation system accidentally leave taxpayers hundreds or thousands of dollars worse off due to miscalculations. 

Furthermore, a recent report by PricewaterhouseCoopers found that it was unclear whether a government tax preparation system would reduce compliance costs as some costs would be eliminated, others would be redistributed and new costs would be created. 

A government tax preparation system isn’t even feasible with existing tax credits and deductions. Many welfare programs and subsidies are administered through the tax code including tax provisions dealing with children, childcare, poverty, education, healthcare, housing, energy and more.  

As noted by a recent study by the Progressive Policy Institute, the IRS does not have the information it needs to prepare tax returns for American families. This could deprive low-income Americans of tax credits like the child tax credit and earned income tax credit (EITC). 

As the report notes, it would be difficult or impossible for the IRS to properly administer these credits. In order for the agency to be able to properly administer these credits, they would have to have a “deep knowledge” of the personal lives of a family, which would result in a significant intrusion into the personal lives of American citizens. 

The IRS already struggles to complete its most basic tasks like reviewing tax returns on time, safeguarding taxpayer information and modernizing its technology.  

In the past year, the IRS has failed to keep up with processing returns. As of March 25, the agency had 7.2 million unprocessed individual returns, including 4.9 million with errors or needing special handling. 

The agency also has a poor record of protecting taxpayer information. Last July, the progressive news organization ProPublica announced it had received the stolen private tax returns of thousands of taxpayers covering 15 years.

This is not the only case where the IRS has failed to protect taxpayer data. For instance, a 2016 U.S. Treasury Inspector General for Tax Administration report found that the IRS had lost track of 1,000 laptops containing sensitive taxpayer data that contract employees used, while hackers stole the personal data of 330,000 taxpayers in 2015.

The agency has also spent a whopping 40 years trying to update its computer system. 

Given these struggles, it is clear that giving the agency new responsibilities to create and administer a tax preparation system is a disaster waiting to happen.

This proposal has failed in the U.S. when it has been tried. California tried a government tax filing system several decades ago and quickly shelved the plan. Just 3 percent of eligible taxpayers used the system when it was first launched, and participants topped out at 90,000 filers.

Taxpayers should be concerned with the left’s goal of having the IRS create a government-run tax preparation system. It is unclear how this proposal would be implemented, would require the agency to collect significantly more information from taxpayers and would entrust the inept IRS with even more responsibilities.  

Alex Hendrie is tax policy director at Americans for Tax Reform.

Tags Alexandria Ocasio-Cortez Bernie Sanders Elizabeth Warren IRS Tax returns taxes

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