A Simple Tax Reform
While the Presidential candidates are campaigning on grandiose and often radical reforms to the current tax system, they are missing out on a simple commonsense reform that would make tax filing easier for millions of Americans.
The idea: the IRS could send pre-filled forms to taxpayers with relatively simple returns, such as those who take the standard deduction and only receive income from wages and salaries. Taxpayers would be given the opportunity to contest the information provided by the IRS and participation would be entirely optional; taxpayers could still file under the old system if they preferred. Such a plan would save taxpayers tens of billions of dollars in time, tax preparer costs, and aggravation. It would also be worth millions more to the IRS which would no longer have to correct the errors those taxpayers make. Everybody wins, except perhaps accountants and producers of tax preparation software.
In 1996, GAO found that roughly 50 million taxpayers would be able to file these returns. It figured they could save as many as 155 million hours of paperwork, equivalent to the time spent on 75,000 full-time jobs. Subsequent studies, including one by the Treasury Department and another by TPC’s William Gale and Treasury’s Janet Holtzblatt, have estimated the number of potential beneficiaries in a wide range between 8 million to 60 million depending on the structure of the reform.
This system is already in use at the state level.
Return-free filing has received little attention in the campaign so far. Presidential candidates Barack Obama and John Edwards have endorsed the notion of a return-free filing system, but have not pushed it very actively or prominently in their campaigns.
Of all the endorsements given to this plan, perhaps the loudest was hidden in a government report: in listing potential drawbacks to a return-free system, GAO noted that if such a system were implemented, “the tax preparation industry could be adversely affected.” Indeed.
Does anyone know if Safe EMS software has an appraisal management feature?
You make a powerful point. Too bad the IRS isn't looking to improve their methods. If they do decide to take your ideas and transform them into reality, you should get the credit for it although I guess this isn't gonna happen.
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As I posted in my blog THE WANDERING TAX PRO when this idea first surfaced as one of Barack Obama’s tax plans, I certainly do not agree with sending “pre-prepared” short forms to taxpayers.
Taxpayers should be allowed to determine if they will claim the standard deduction – and not be told, or even suggested, by the IRS that this is what they should do. Individual situations change from year-to-year – how does the IRS know that a taxpayer is better off filing a short-form simply from his W-2 and Form 1099-INT information. Taxpayers should also be allowed to consult a competent tax professional to determine if the standard deduction or a short-form will result in the least tax liability.
Let’s face it. There are a lot of taxpayers who would save lots of money by itemizing or taking advantage of various other tax adjustments or credits – but who would simply sign a short-form and pay a lot more tax then they would or should have to if the IRS sent them a pre-prepared return and requested a signature.
And looking at the issue from the government side – who is to say that the only income a taxpayer has to report is included on the W-2 and Form 1099-INT information that the IRS has in its computer matching program. Besides, pre-printing and mailing out such forms would be a waste of the government’s money.
Actually I agree with the basic thought behind this totally unacceptable idea – that the current Tax Code is too complicated and needs to be simplified.
If the Tax Code itself were substantially simplified, with a flat tax and a system under which all taxpayers would file a simpler “short-form” (like the half-page return that had been suggested by the President’s Advisory Panel – remember them) than it might be ok for the IRS to send out pre-printed returns. But certainly not under our current tax system.
TWTP