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Matthew Yglesias

Why do we have to file when the IRS knows already?

Nobody likes taxes. People like money, and taxes are all about having less money. Even worse, when you give up money to a car dealer or a doctor or Amazon, you get something in exchange. But the government trundles onward no matter what you do.

Collectively, of course, taxes are absolutely necessary, but the process of actually filling out the forms and calculating the required sum is an unnecessary evil. Substantial tax reform is hard, but reforming the tax-payment process would be easy. The only thing standing in the way of 15-minute taxes is the lobbying clout of the tax preparation industry - and it’s getting worse even as technology should be making it better.

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The trend dates to a January 2010 initiative by the IRS to “regulate the tax preparation industry for the first time,’’ requiring tax prep companies to pay special fees and get special licenses.

The three largest tax preparation chains - H&R Block, Jackson-Hewitt, and Liberty Tax - all applauded the new rule, as did the American Institute of CPAs. Not coincidentally, CPAs are exempted from the rule. They like it for the same reason the big companies like it: It puts potential competitors out of business. The fees and associated paperwork involved in the new regulations are small compared with the scale of major chains’ operation. But for the hundreds of thousands of small-scale entrepreneurs who do some tax prep work as a part-time, highly seasonal sideline source of income, this relatively small burden can loom large.

IRS commissioner Douglas Shulman even concedes that there’s no real problem with the vast majority of these practitioners, saying “It’s a small number of people that are unscrupulous, but those are people that we need to make sure we’re focused on.’’

The even bigger policy question regarding tax-paying is: Why do you have to fill out all these complicated forms at all?

Your employer, your bank, your stock broker, etc. record and transmit almost all relevant information about your money to the IRS, meaning that if you lie, you’ll get caught. But by the same token, the IRS could simply collect all this information and send you a tax bill. You could read it over, sign at the bottom, and either include a check or wait for your refund.

Needless to say, taxpayers should have the right to dispute the veracity of the IRS calculations and submit their own form. And some classes of people are going to routinely have unusually complicated tax finances. But for the vast majority of the population, most of the pain of tax compliance could be eliminated by a few keystrokes at IRS headquarters.

So why don’t we do it? Two reasons. One is lobbying by the tax-preparation industry to discourage states and the federal government from developing easier tax-paying systems. The second is lobbying by antitax advocates.

Matthew Yglesias writes about business and economics for Slate.
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