Why Does Doing Your Taxes Suck So Much?

They're hard for a reason.
LD
illustrated by Luca Depardon
March 5, 2018, 1:23pm
Illustration by Luca Depardon

Taxes suck.

This sentiment is as common as the opinion that dogs are cute as hell. And while some of that’s couched in the idea that the government is stealing your money—a point to be debated at another time!—much of the hatred is simply because the act of filing one’s taxes is a drag, or even a trick, like the specter of the IRS is waiting for you to make a mistake so it can descend with fines and handcuffs.

But it isn’t just the happenstance of bureaucratic mire that makes filing your taxes feel like you’re driving yourself to your own execution. This is by purposeful design on the part of the tax prep lobby.

“People often just focus on the actual moment of filling out your tax return, and not the other burdens that the system creates on taxpayers,” says Lily Batchelder, a professor at the NYU School of Law.

There’s “compliance complexity,” the well-known physical act of filling out the lines and keeping the receipts. But there’s also “rule complexity,” the headache-inducing confusion of complex tax laws, and “transactional complexity,” that annoying listing of pros and cons throughout the year as one tries to rearrange affairs to minimize taxes.

This last concept may best be exemplified by the decision workers now have regarding the new deduction for “pass-through income,” which incentivizes workers to become independent contractors. This would allow them to deduct more, but by doing so they’d also lose benefits and protections that come with employment, like health insurance or vacation pay. “It’s likely to create a lot of psychic costs to people because they’re potentially making a long-term decision,” says Batchelder. “I’d be really worried about making the right one.”

It’s a tax code quirk likely to result in more freelancers, who will spend Februaries collecting 1099s, Marches guessing at write-offs, and Aprils hoping for the best. For those folks, and I’m one of them, the act of filing taxes won’t get easier anytime soon. But for the classic full-time W-2ers, why isn’t the filing just getting a pre-filled form in the mail, examining it, signing your name, and sending it back?

“What dream world do you think you’re living in?” is a likely response to this. “That could never work,” is another. But what’s frustrating about how we do taxes now is that this idealized method actually was tried in the past. And it worked.

In 2005, the California Franchise Tax Board (FTB) piloted a program called ReadyReturn, a free service that automatically populated returns for 50,000 California taxpayers. People received them in the mail, could make any changes they saw fit, signed their name, and returned them. Simple as that. And the project tested overwhelmingly positively, with 99 percent saying they’d use the service the next year.

It was a slam-dunk, thought Joe Bankman, a Stanford law professor and one of ReadyReturn’s developers, until he received a fax from a lobbyist for Intuit, the makers of TurboTax.

“The text described pro-forma returns as an invasion of privacy, claimed the FTB lacked the authority to carry out a pilot program, and threatened retaliation if the agency went ahead with the pilot study,” Bankman writes in a recollection of the project titled Mr. Smith Gets an Education. “The fax was not signed by the lobbyist or the company: it was signed by twenty-five California legislators.”

Big Tax Prep had gotten to them before Bankman could. Intuit’s logic was obvious: If people could file their taxes easily and freely through the government itself, their entire business could collapse.

This lobbyist pressure hasn’t stopped. A 2013 report by ProPublica detailed how Intuit spent $11.5 million to forestall any attempts by the government to offer similar free filing services. Much of that money has recently been used to push the Free File Act of 2016, which, according to Consumerist, seeks to “lock in the public-private partnership with the Free File Alliance,” a consortium of the top tax preparation agencies, including Intuit and H&R Block. If that gets passed, taxes will continue sucking into the foreseeable future, despite the existence of better options.

“[Tax preparation] is one of the few areas where the federal government has significant efficiency advantages over the private sector, and that’s what Intuit and H&R Block are scared of,” says Dennis Ventry, an expert of tax policy at UC Davis. “There’s zero reason why taxpayers should be paying a penny to have their taxes done.”

But pay we do, either in money or time. According to the IRS, the average taxpayer spends 13 hours every year on their taxes. (Another conservative think-tank puts the number at an average of 54 hours per taxpayer.) Compare this to Britain and Japan, who have used “return-free filing” since World War II, or the dozens of others with similar programs, including Sweden, where it takes “less than 10 minutes” and it's no wonder that even the thought of a W-2 sends shivers down even the most fiscally responsible of spines.

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