Happy Tax Day!
Today marks the end of a several-week period in which most of us navigate the complicated and often frustrating process of paying taxes in America. According to a recent report by the Internal Revenue Service, the average American spends about 13 hours — and pays about $200 — to get his or her tax return filled out and submitted.
In theory, this process could be a lot simpler. But helping Americans file their taxes, a basic function of citizenship, is big business — H&R Block, for instance, pulled in $3.1 billion last year — and many of the same companies Americans turn to for help with their taxes lobby hard to make sure Americans keep needing that help.
Since 1998, companies that help Americans file their taxes, and groups that represent those companies, poured more than $40 million into influencing Congress, according to data compiled by the nonpartisan Center for Responsive Politics. The bulk of that spending came from Intuit, the maker of TurboTax, and H&R Block. Both companies dramatically increased their lobbying budget in the last decade, with Intuit passing $1 million annually in 2006 and committing more than $2 million every years since 2008. H&R Block has spent more than $2 million every year since 2013.
This lobbying is for changes that would be arguably beneficial — such as setting standards for paid tax preparers; incompetent preparers can end up filing taxes inaccurately, while ripping Americans off and lining their own pockets. On the other hand, this kind of watchdogging wouldn’t be necessary if it were easier for Americans to do their civic duty in the first place.
To that end, Senator Elizabeth Warren of Massachusetts last week introduced a bill that would allow Americans with simple taxes, including many poor Americans, to avoid filling out a return at all. It also directs the IRS to develop a software program that would allow those who do fill out returns to file directly with the government.
In a report issued with the bill, Warren’s staff noted that in 1998, a Republican Congress passed and then-President Bill Clinton signed a bill requiring the Treasury to develop by 2008 a system for “return free filing.” Yet, the report finds, “Despite its legal obligations, the IRS has surrendered to industry pressure and other efforts to block access to free and accurate return-free tax filing.”
Tax preparers have been known to push Congress to keep the process of filing taxes complicated — or to make it more complicated. While lobbyists justify these efforts as serving some arguable public good, such as cutting down on fraud or conserving the IRS’s resources, the legislation they lobby on often would also pad tax-prep companies’ bottom lines.
Take, for instance, a story that unfolded in 2015 involving H&R Block. In July of that year, the Senate Committee on Appropriations approved a bill that for the tax prep companies’ lobbyists represented a major victory. Buried inside this legislation was a provision that would have at least quadrupled the amount of paperwork that poor Americans would to fill out in order to claim the Earned Income Tax Credit (EITC).
The EITC is aimed at assisting the working poor by reducing their tax burden. Much of H&R Block’s lobbying efforts, in fact, have focused on the EITC.
This particular tax credit is one of those rare social safety net policies that has support from both liberals and conservatives in Congress. It encourages the poor to remain in the workforce, and rewards those who do by effectively bolstering their annual income.
The policy seems to work. In 2014, the EITC reduced the tax burden of 27.5 million Americans by a combined $66.7 billion. A January report by the Center on Budget and Policy Priorities (CBPP), a Washington think tank focused on reducing poverty, found that the EITC lifted roughly 6.2 million Americans out of poverty in 2013. More than half of those people were children. Without the credit, the report found, the number of children living below the poverty line would have been 25 percent higher.
It was not lost on advocates for poor Americans that, if H&R Block succeeded in making the process of applying for the EITC more complicated, more low-income Americans would likely seek out help — from companies like H&R Block. “Were this directive implemented, no one should be surprised to see large numbers of individuals who now file their own returns either giving up and not claiming the EITC due to the added complexity or turning to paid preparers, who could charge hundreds of dollars for their services,” wrote CBPP president Robert Greenstein at the time.
H&R Block pushed back, arguing that its main goal was to combat fraud. “This is not about competitive business interests. It’s about reducing fraud and protecting the future of the EITC,” the company said in a statement last year. “Anyone who says differently is not really committed to fixing a gaping hole in EITC eligibility or to reducing the billions of dollars in improper EITC payments that occur every year.” (H&R Block did not reply to our request for further comment.)
When the company talks about “reducing fraud,” it is getting at the fact that people who don’t qualify for the EITC often claim it. Adding the additional paperwork, H&R Block essentially argued, would force those who want to apply for the EITC to double-check that they are, in fact, actually eligible.
But there’s little evidence this additional paperwork would help. In fact, the people whom Americans pay to fill out their taxes — like personal accountants, or the trained preparers in H&R Block’s storefront shops — already have to fill out a more extensive worksheet when filing for the EITC on behalf of a client. Even so, these paid preparers claim the EITC incorrectly on behalf of their clients — and, in fact, do so at higher rates than people who simply fill out their own taxes. More paperwork does not seem to equal more accurate tax returns.
Furthermore, CBPP argues that those who incorrectly claim the EITC are likely confused — not bent on committing tax fraud. So, if H&R Block was, as the company claimed, aiming to cut down on “fraud,” complicating the process for individuals to file the Earned Income Tax Credit is an odd way to do it.
The Senate Appropriations bill that contained this provision never passed — but a later bill, the Protecting Americans from Tax Hikes (PATH) Act of 2015, does require the IRS to study ways to cut down on EITC “fraud” among poor people who prepare their own taxes. This leaves the door open for H&R Block to continue its push on the EITC.
While at least for now, H&R Block’s push to add paperwork for those who file their own taxes has not paid off, those who benefit financially from tax day have been successful in preventing broad changes to the status quo that would reduce the need for their business.
Both H&R Block and Intuit have pushed for some degree of tax simplification. Intuit, in fact, took out full-page ads in major papers today advocating for tax simplification, and, in a press release last month, even took a jab at those who support plans to make filing for the EITC more complicated.
But as Liz Day has documented extensively for ProPublica, Intuit has pushed relentlessly to prevent the IRS from setting up a system where taxpayers would simply receive an invoice from the government, detailing what they owe — a system that a number of other countries have implemented. Taxpayers could then choose to pay the bill, or, if they didn’t trust the government’s math, recalculate their return the old way — the way everyone has to now.
Tax-prep industry lobbyists have found allies in libertarian-minded anti-tax groups, who have pushed to limit the IRS’s authority. Allowing the IRS to tell Americans how much they owe, instead of requiring taxpayers to do the math themselves, would invite government overreach, these groups say. Companies like Intuit happily agree.
Warren’s bill would push back against this coalition. And it has some high-level support: Democratic presidential candidate Bernie Sanders is one of the bill’s co-sponsors, and Hillary Clinton told ThinkProgress she supports it.
But with anti-IRS sentiment running high among Republicans in Congress — and with the tax prep lobby pushing hard for the status quo — the legislation remains a long shot.