Since the enactment of the misnomered Inflation Reduction Act into law, much of the attention on the $80 billion allocated to the Internal Revenue Service (IRS) has been focused on concerns over the hiring of nearly 87,000 new agents. In typical bloated-government fashion, the cart may once again have come before the horse as some of those funds may, in fact, eliminate the reported need for those employees.
For decades, Congress has postured toward simplifying the tax code and even doing away with tax returns to streamline the process for taxpaying citizens. Now, $15 million of the enormous spending package has been set aside to produce a report on how best to implement a government-run, free tax e-filing system that technically already exists.
Following the IRS’s Restructuring and Reform Act of 1998, the agency signed an agreement with the Free File Alliance in 2002 that allowed them to offer commercial tax services to low income filers at no cost so long as they agreed to not make their own free tools and violate the noncompete clause. While this was designed to meet the “goal of having 80% of Federal tax and information returns filed electronically by the year 2007,” there has been one inherent problem.
Barely anyone uses it.
In April, the Government Accountability Office reported that 70 percent of taxpayers are eligible for the free services, but only three percent have utilized the program. This didn’t stop Sen. Elizabeth Warren (D-Mass.) from promoting her own Tax Filing Simplification Act in July ahead of the passage of the Inflation Reduction Act.
She told the Associated Press, “I’ve been pushing for a free tax filing system for years, and now the IRS is on the verge of having significant funding to modernize its IT systems, which means it’s time to develop simplified filing tools laid out in my Tax Filing Simplification Act.”
“Americans spend too much time and money to file their taxes, and the IRS should adopt these proposals to help millions of American file taxes and claim refunds,” Warren went on.
However, providing free services for taxpayers to claim their refunds isn’t the only avenue that the IRS is considering as return-free filing is also being seriously examined by the agency. In most countries that have implemented such a system, a 2003 Treasury Report found, “taxpayers meet their tax obligations entirely through tax withholding payments made throughout the year.”
The report also found, “Moving to a return-free tax system without first simplifying the income tax would require substantive changes in tax administration. These changes could shift burdens from taxpayers to other parties, including employers, financial institutions, state governments, and the IRS.”
Frank Clemente, director of Americans for Tax Fairness, a left-leaning advocacy organization, told The Hill, “It’s critical to make filing taxes as easy as possible. We’ve got to move away from this adversarial feeling. A simpler tax system will reduce cost, increase compliance and make people just feel better about the IRS.”
“Whatever the proposals look like,” he continued, “it means there’s got to be a plan behind that.”
Presently, the government appears to be employing a “ready, fire, aim” approach to dealing with taxes as hiring nearly 87,000 agents before conducting a report that could lead to the IRS drastically reducing its need to conduct audits is ostensibly counterintuitive. More than likely, it is signaling that efforts from the Free Filing alliance to “keep the Federal Government from entering the tax preparation business,” as stated by former Treasury Inspector General for Tax Administration J. Russell George in 2006, are indeed working.
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