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Tuesday, April 24, 2007

Jackie Edwards takes on TurboTax

The process by which we Americans figure out our federal taxes is ridiculous. So many tens of millions, maybe even hundreds of millions, of hours spent struggling with those 1040 forms. Maybe a billion dollars in fees paid to tax return preparers and makers of tax software.

And for so many taxpayers, it's an absurd waste of time. The government already has all the information it needs -- from employers, mortgage companies, state governments, and banks -- to have the perfect picture of tens of millions of people's tax situations. Those people struggle to fill out their return forms, but in the end they don't tell the Internal Revenue Service anything that the IRS doesn' t already know.

John Edwards, the best candidate currently running for President, wants to change that. He thinks the IRS ought to prepare a draft tax return for you every year, at least if you're a person whose taxes have historically been relatively simple. If, let's say, all you ever show on your tax return is wage income, bank interest, a personal exemption for yourself, and a standard deduction, Edwards thinks the government should routinely prepare your tax return and send it to you. I would bet that in the case of 30 or 40 percent of taxpayers, the return so prepared would be completely correct. In that case, the taxpayer could just sign it, and send it back. Everyone else could throw away the IRS's version and do it themselves, the way they do now.

It's an idea that ought to be tried. California is already running such a system on a limited scale. But strong forces are trying to derail this movement -- H&R Block and Intuit, the maker of TurboTax software, are spending zillions trying to stop it.

It seems clear that we're at least a decade away, if not a century, from a truly simple tax system in this country. For many people, the process of filing an income tax return will never be easy or cheap. But for the untold tens of millions for whom it's a lot of hassle just to tell the government what it already knows, Edwards's idea is a sound one.

TurboTax can withstand the hit to its income, which would take years to kick in fully if the IRS started today to take on such a project. This year, Intuit's reporting a 5 percent annual increase in sales of its TurboTax products. Figures released last week show that they sold nearly 13 million copies of their software, either for desktop use or on the web, this tax season. If that number declined to 8 or 10 million, no one would die.

Little America shouldn't need H&R Block or TurboTax; leave it to a populist like Edwards to make that clear. Good for him, and for his idea.

Comments (23)

Five posts before 10:30AM? I can tell the kids are in school and Mr Bodanski has the day off. (so to speak)

I think California ended that program, despite generally good reviews. The coalescence of anti-tax forces who like that taxes are an administrative burden coupled with the special interests you name combine to shaft the public. Maybe Oregon can succeed where California failed?

Well, I'll be damned. Just checked your link and I see that the early reports of the programs demise (and my earlier post) were in error.

I am all for simplicity-like a flat tax where we all pay the same low percentage except for those under a certain wage level....and NO EXCEPTIONS NO LOOPHOLES....and with those no exceptions or loopholes the very rich would actually pay their fair share....whaddya think?

Got word from Turbotax that they're refunding our fees we paid as one of the people who couldn't get through the overwhelmed servers --or whatever-- on tax day. I almost feel badly (well, almost) but we shouldn't have been filing at the last minute anyway, right?

At least there's one new tradition in the Dufay household: my wife does the taxes. Hey, she took accounting, I only majored in Public Finance...and we all know where THAT leads.

Actually, the other tradition I'll miss is having a bottle of wine while I filled out the returns. You start to get really creative by the end. (Hey, just kidding IRS!)

Now, the point: The Edwards idea is great. In fact, for people who didn't file their Personal Income Tax in Multnomah Country those last three years (it WASN'T due this year...don't panic) the folks who do this stuff (I don't) calculate the tax owed based on whatever info they have, and people have a right to challenge that. Seemed to work well.

Five posts before 10:30AM?

My blogging software allows me to write entries in advance, and post them from time to time on a schedule during the day, even when I'm not at my computer. I had that feature going today.

for people who didn't file their Personal Income Tax in Multnomah Country those last three years (it WASN'T due this year...don't panic) the folks who do this stuff (I don't) calculate the tax owed based on whatever info they have, and people have a right to challenge that.

The IRS also does this. If you don't file a return, often they'll prepare one for you, and send you a bill. Ina way, Edwards would be expanding this practice to law-abiding folk.


It sounds like what you are proposing is a tax on gross receipts. They have this in some places -- Washington State has a "business and occupations tax," for example -- but it doesn't come across as particularly fair. Businesses that handle a lot of cash but lose money pay more taxes than those who handle a little cash and get to pocket it all.

To be fairer, most places tax net income. But that means there are deductions, and that's where the fun starts.

This sounds to me like another scheme to have the government "take care of us cradle to grave." I'd just as soon let the free market place work it's way out and take care of my own taxes thank you!

Speaking of exceptions and loopholes... I used TurboTax to do my daughter's (relatively) easy federal and state tax returns. The "adjustments to income" section for the feds was pretty short. Oregon's, on the other hand, was at least 6 or 7 pages - with like, 5 or 6 questions each. Each of the questions determined whether you qualified for some state adjustment or another. There were some doozies.

Anyway, once again, I think Edwards has suggested a sensible, fairly easy way to make things better for the average Joe. Which is something even a lot of Dems don't seem too concerned with. I think he's the best candidate so far too. 99% of the critiques against him are lame, IMO: he's too pretty, he's too rich (to be a populist), his wife is sick.

I don't believe limited experience in politics is necessarily a drawback. Especially when we see what experience has brought lately.

"loopholes the very rich would actually pay their fair share"

Please expand.

Jack, I can see where a flat tax would be a hassle for businesses, but for the regular taxpayers, it would be easy. And no way to get out of it. You write down what your income for the year was, take 25% (or whatever it is), and you write a check for that amount. Done. No deductions, no loopholes.

Seems simple to me.

I agree with the flat tax for individuals, as kathe w. and Jon mentioned. I'm on the fence about the no deductions though, as they seem like good incentives for people to act in ways they normally wouldn't, such as buying a hybrid vehicle.

no way to get out of it.

Are you kidding? For people who work for cash -- drug dealers, food service workers, cab drivers, valets, housecleaners, nannies, gardeners, etc. -- they could cheat just as they do now, by not declaring what they make.

There's a lot more to avoiding taxes than just overstating deductions.

As for one tax rate for all income, many poor people would not like the results.

I agree Jack, I see that as a problem too. What do you believe would be a good solution to that? What do you think of the fair tax?

I think we need a combination of a national consumption-based tax, like the value-added tax so prevalent in other countries, coupled with a simple income tax that hits only those households who make, say, $150,000 or more. As I blogged about here in 2005, Prof. Michael Graetz at Yale has got it mostly right.

Oh if personal income was none of the government's business,,,,,,,

What a wonderful country this would be.

"loopholes the very rich would actually pay their fair share"

Please expand.

that means the very rich would actually pay taxes as they would have no deductions. A family of four having an income of less than $30,000 per year would have no taxable income. Period the end.

Kathe, you appear half-armed, so I'll back off.

Hmm. It seems like I heard something about this on NPR fairly recently...

I think it's a great idea. The government already has all the information for those of us with simple returns, so why not?


I was also delayed for 48 hours due to Intuit's processing choke point. But they didn't offer to comp my TurboTax e-filing fees.

Did you complain to them, or just receive an email?

There is a reason we have the tax system we have...It didn't just "happen" as some would imply. There are many who profit from complicated and convoluted tax laws and that's why we have what we have.
The best way to get rid of a tax is to enforce it uniformly. Meaning everybody pays the same rate and there's no redefining income. Right now we have the middle (working) class paying a higher percentage of what they make to subsidize both the very poor and the very rich. The very poor don't make much but they don't pay much yet get tax subsidies from the middle class. The rich make a lot but pay little in taxes relative to what they make and also get subsidies from the working class. Socialism at its' best.

Wow, I thought I paid my fair share. I paid out 33% of my income to the IRS and 9% of it to Oregon. Sorry, there are not as many loopholes as you all think. In taking advantages of the loopholes, I was subject to the Alternative Minimum Tax which causes those of us who have large incomes to pay our fair share. Gee, I thought over $100,000 in taxes was pretty unfair. Let me see some of you complainers hand over 40% percent of your income and then tell me I get too many breaks.That percentage didn't include the 7.65% that was held out of my wages for Social Security.


I'm all about this.

Erik- sorry- I am a bit puzzled. What does half-armed mean?


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