Futurepower - Tax return reform





	Tax return reform Tax return reform is an excellent first step toward tax reform. by Michael Jennings Futurepower ® Technological Due Diligence (January 8, 2009 version) Austan Goolsbee, an economic advisor for President Obama, wrote an excellent April 7, 2006 op-ed article for the New York Times, Why Tell the I.R.S. What It Already Knows? (PDF) The idea is that the IRS could send "Simple Returns" to the 40% of the taxpayers with simple tax situations. The Simple Returns would already be filled with information that the IRS gets from employers and banks. If there is no error, the taxpayer would simply sign the form and send it with a check, or a request for refund. Many people have suggested wholesale tax reform, but experience has shown that all-at-once tax reform is not something that can be accomplished, either politically or technically. The issues are too complex to be resolved all at one time. However, rapid step-by-step reform would be successful, if each step is appropriately simple. The Simple Return is an excellent first step. The next step would be an online tax return preparation system that would help in the preparation of the tax returns of the 60% of the taxpayers who cannot not use a Simple Return. The federal and state tax codes are messy. Sometimes state tax regulations even conflict with federal regulations. Sometimes the explanations about how to fill the forms are confused; sometimes the explanations are confused because the tax law itself is confusing. Online tax return preparation allows changing the tax return system instantly as each tax wrinkle is resolved. The online system would start with Simple Returns and build in complexity, a little at a time, until most or all taxpayers are served. Taxpayers with simple tax situations who didn't want to use the online system could continue to ask for Simple Returns by mail. Those who are comfortable online could see and file their Simple Returns online, saving the government the cost of mailing the returns to the taxpayer, opening envelopes that contain returns, and scanning and checking the mailed returns. To allow initial use of the online system, the IRS would issue participating taxpayers a user name and password by mail. When they logged in, taxpayers would be presented with forms already filled with the information the federal and state governments know. The federal and state information needed from the taxpayer would be consolidated. Using information supplied by the taxpayer, the system could generate completed tax returns that would be accepted online, with confirmation of receipt mailed by the federal government. Sociological problems: There are sociological problems with establishing an online tax return system. One such problem is that states won't cooperate immediately. In that case, the federal system could still help taxpayers prepare their state returns online. Taxpayers in states that don't cooperate immediately could use the online calculations to enter information on traditional state forms, or the online system could print those forms. Another sociological problem is that tax return preparation services make billions of dollars helping taxpayers deal with the present mess, and they won't want to lose the income. In Oregon, tax return preparers quoted us $1800 to $2200 per year to prepare returns for our professional corporation. We discovered that they don't worry about being accurate, since only about 1/3 of 1% of the returns are audited. The ones we found all use Intuit professional tax return preparation software. They all ask their prospective customers to use Intuit Quickbooks accounting software. The significance of that question is that they merely take the Quickbooks file produced by the taxpayer and import the information into the professional tax return preparation software, and they are close to being finished. I calculate that they are often making more than $300-$600 per hour from small business customers, most of whom make less than $70 per hour. A third sociological problem is that the present wildly complicated tax return system makes work for employees of the federal and state governments. With the online system, many government employees simply wouldn't be needed. The sociological problems must be resolved in the gentlest possible way. There is an important principle of government that needs to be explained and thoroughly established. The government must always act in favor of the people in general. The government cannot support the profits of companies if in doing so it would act in conflict with the general interests of citizens. Considering past experience, it is to be expected that those who profit from the present inefficient system would try to make political trouble for tax return reform proposals. This is a worry, but not a huge worry apparently, since so many people are extremely unhappy with the present system. Technical challenges: A group that is skilled in computer programming but has little skill in dealing with sociological problems would not be successful in designing and making a federal online tax return system. These are the skills needed: The designers must be professional communicators. They must be prepared to do the work of communication themselves, leaving as little as possible for users of the online system. Everything about the operation of the system must be clearly explained. The designers must be skilled computer programmers. One of the biggest challenges is that the designers must resolve big problems, while at the same time being willing to attend to the thousands of tiny details presented by the design of any successful system. The designers must be especially skilled at designing user interfaces. Most programmers don't like or don't appreciate that part of programming. The designers must understand the hardware that will deliver online services to millions of taxpayers. Most computer programmers are not sufficiently knowledgeable about computer hardware. Many of the problems are fundamentally social problems. For example, people who have been doing the same thing repeatedly for years often resist change. The designers must be skilled at resolving social problems. Each of these skills interacts with the others, so those who work on the system must have all of the skills. Four important points: It is worth repeating is that tax return reform is an excellent first step toward tax reform. The 60% of the people who can't use a Simple Return and who would be benefited most by an online system tend to be the most politically influential voters. The tax return system is far more anti-taxpayer than most people realize. The idealism of the Obama administration allows unprecedented improvements. Link for use with printed copies: Austan Goolsbee's April 7, 2006 op-ed article in the New York Times, Why Tell the I.R.S. What It Already Knows? (PDF) http://faculty.chicagogsb.edu/austan.goolsbee/website/PDFs/nyt.apr7.2006.irs.pdf Latest version of this article available online at: http://www.futurepower.net/GOV/tax_return_reform.html Web site: http://www.futurepower.net Copyright ©2009 Michael Jennings. Exact printed copies may be made for any purpose. Do not make online copies. Instead, link here; that will assure that everyone reads the latest version.