Tax-Software Lobby Stifles Calif.’s Ability to Save Taxpayers Time and Money

In this New York Times article, Randall Stross points out that many industrialized nations offer their taxpayers a return that contains all of the data collected by that nation’s tax authority. But the U.S. does not. Stross writes:

It’s a stunningly reasonable idea. When you prepare your return, why can’t you first download whatever data the Internal Revenue Service has received about you and, if your return is simple, learn what the I.R.S.’s calculation of your taxes would be?

Stross explains the corporate interests that stand in the way, and he uses California taxpayers as an example:

With little money to finance the project, and over the objections of the tax-preparation software lobby, [California] began a small pilot project to offer a pre-filled state tax return, called ReadyReturn, to a small sample of taxpayers with simple returns for the 2004 tax year. Invitations went out to about 52,000, and fewer than 12,000 ended up participating.

… Last year, about 60,000 returns came in through ReadyReturn from the two million taxpayers who were eligible. (Participants must have income only from wages and have just one employer, among other restrictions). An astonishing 99 percent of ReadyReturn participants said last year that they would use the program again.

On a comment page for last year’s users, one glowing testimonial follows the next: “Filing my taxes has never been easier! I love this service!”

In addition to simplifying the completion of returns by taxpayers, the ReadyReturn system saves California’s state budget a lot of money. It costs the state $2.59 to process a paper return, and only 34 cents to process a ReadyReturn. So what prevents more taxpayers from using ReadyReturn?

“Publicity remains one of the most formidable obstacles,” said John Chiang, the state’s controller. California has budgeted only $10,000 for getting word out. The meagerness of the funds allotted for the ReadyReturn program reflects the strength of its political opponents, Mr. Chiang said. The most vigorous opposition comes from companies that sell tax-preparation software, “principally, Intuit,” he added.

Intuit, which publishes TurboTax, does not dispute this description. “We’re a California company and actively participate in the political process,” said Julie Miller, a company spokeswoman. “Our position has consistently been that ReadyReturn duplicates what is already available.”

Intuit’s official position is that ReadyReturn duplicates the I.R.S.’s FreeFile initiative, which provides online links to private tax-preparation services that offer a free federal tax return to some low-income taxpayers. But there isn’t much duplication.

Although FreeFile provides free state-tax returns in some states, California isn’t one of them (even though one out of eight U.S. residents lives there). In addition, FreeFile does not provide taxpayers with the information that the government already has nor does it use I.R.S. software to perform tax calculations.

It’s shameful that software-selling companies are able to use their lobbying clout to limit California’s ability to make its residents aware that this program is available — a program that might save them the cost of buying TurboTax or some other software package.