The Second Cruelest Tax

Time is money too

I was going through old paperwork recently and ran across something from a much simpler era—my federal tax return for 1992, filled in by hand. My apologies to the IRS agent who had to read my cramped penmanship.

I assume there are a few people who still do it the old-fashioned way, but by 1997, when I was married and had to deal with three countries’ tax authorities, it just got way too complicated. Apparently it also did for PriceWaterhouseCoopers, who made an expensive error—arrgh.

When my employer stopped paying for such great tax prep, I found a CPA over the internet who specialized in expats. My extremely limited knowledge of taxation turned up a doozy of an error before he filed my return. When I asked about it, he said that’s what the software told him.

I was surprised that he could charge me several times what I could have paid for my own software, plus a few hours of typing in numbers from forms (probably correctly). But then there’s really no other way to do a more complex return in a reasonable amount of time these days.

The U.S. tax code is byzantine and ever-changing. Along with Internal Revenue Service guidelines, it’s 75,000 pages long and filled with obscure deductions for everything from swimming pools to clarinet lessons to children’s wooden arrows.

And that’s before the latest “Big, Beautiful” bill that added breaks for Alaskan fishermen north of a certain latitude, space ports and people who give advice on scholarships for private schools. These bills are so massive and involve so much political horse-trading that they’re a perfect opportunity to slip in some ridiculous measure a member of Congress, or their donors, really want.

Overall, the bill will save some mostly well-off people a fair amount of money, which is why many of them are fine with the social services cuts that will partially pay for them (the rest of the tab is on future generations, with interest).

But what if politicians could have thrown in a tax break worth $464 billion that most Americans could share and that wouldn’t cost anything? How about one that could also save us from a lot of stress each April? That’s how much the National Taxpayers Union Foundation estimates Americans incur in direct costs (accountants or tax prep software) and time spent dealing with tax returns (13 hours on average, calculated as foregone income).

If I were a politician coming up with a way to avoid that burden then I’d do what the NTU did and translate into dollars and cents and describe it as a tax cut. Money is money and time is also money too, after all.

Though I wasn’t super impressed with Britain’s bureaucracy, there was at least one thing that struck me as refreshing and sensible: The process of adding up how much tax I owed or was owed back at the end of the year was quick and easy. The government basically sends you a report. If something’s wrong, it’s on you to correct it. The smaller number of crazy carve-outs and loopholes make that possible.

Another thing that makes it possible? A government not completely captured by industry lobbyists. There is (well, was) a program begun last year that could prepare millions of Americans’ federal tax returns for free called IRS DirectFile. One of my nephews used it and got his refund.

Unfortunately, DirectFile was just shut down as part of the Big Beautiful Bill. This is one of those malicious things I just don’t get since it couldn’t cost much to keep running now that it’s set up. I certainly wouldn’t brag about shutting it down, but:

The reader context is the chef’s kiss. I personally am back to using an accountant after a couple of decades with TurboTax, the leading tax software made by Intuit. It didn’t seem to matter how recently I purchased the disc or downloaded the program. The software still spent three minutes updating itself over the same internet connection that allows my family to stream multiple videos around the house.

Even though TurboTax asked me just a fraction of the possible questions that might qualify me for a boondoggle tax break—am I blind, do I live in Yonkers, am I a fisherman, did I adopt someone?—it just got too time-consuming.

What’s an hour of my time worth? And what would the program say if I adopted a blind fisherman from Yonkers? Intuit always found a way to upsell me an even more expensive version of their software when I was halfway through with my return (um, “Deluxe” doesn’t cut it?) to handle some wrinkles like book royalties.

So I wasn’t surprised to read this investigation by journalism nonprofit Pro Publica.

By 2019, nearly 40% of U.S. taxpayers filed online and some 40 million of them did so with TurboTax, far more than with any other product. But the success of TurboTax rests on a shaky foundation, one that could collapse overnight if the U.S. government did what most wealthy countries did long ago and made tax filing simple and free for most citizens.

For more than 20 years, Intuit has waged a sophisticated, sometimes covert war to prevent the government from doing just that, according to internal company and IRS documents and interviews with insiders. The company unleashed a battalion of lobbyists and hired top officials from the agency that regulates it.

“For a decade proposals have sought to create IRS tax software or a ReturnFree Tax System; All were stopped,” said an internal Intuit company report obtained by ProPublica. It detailed techniques to build fake grass roots support and buying ads in “African American and Latino media” for quashing such initiatives.

One thing the investigation didn’t fully explore is why many tax prep companies with storefronts specifically target poor neighborhoods for tax prep. That isn’t because there’s a lot of complexity in local people’s tax situations or that there are very big numbers involved. Poor Americans usually pay little to no federal income tax, have very little investment income, and often are due a refund.

But the forms are complicated and the refunds are seen as a sort of annual bonus that shows up on a national level as extra spending during the late winter and early spring. The tax prep companies basically give people a high interest loan by sending them their own money early, minus a fee. Translated into interest, it’s the equivalent of charging you loan-shark level interest rates.

It’s all kind of outrageous. The U.S. is one of two countries (Eritrea is the other) that taxes its citizens or permanent residents worldwide. Congress has written the most complex rules for filing said taxes in the world, and it isn’t even close. But members of Congress, after accepting money from lobbyists for companies that help us do our taxes, stop the bureaucracy they fund for collecting said taxes from continuing a program already paid for that would save billions of dollars and precious time.

Different rules already apply to members of Congress when it comes to health insurance and insider trading. Their pensions and travel perks are the envy of normal Americans too.

It wouldn’t be an awful idea for people representing us to be subject to the same limits, laws and frustrations. So when it comes to the tax rules that only seem to multiply, here’s a modest proposal: Force members of Congress to file their own tax returns. By hand.