Doing Your Taxes Is The Worst Because Tax Industry Gets Rich That Way

The IRS could make tax filing easier, but Intuit and H&R Block spend millions lobbying Congress to prevent it

Illustration: Vocativ
Apr 14, 2017 at 11:45 AM ET

As Tax Day approaches on Tuesday, tens of millions Americans once again begrudgingly turn to the two biggest services, TurboTax and H&R Block, to file their returns online. For many, this (or going to a brick-and-mortar version) is the only realistic way to get their taxes done, shy of finding and hiring a personal accountant that charges much higher fees. But while those two companies make billions each year, it’s hard to imagine they’d have that kind of business if they didn’t spend a comparatively small fortune lobbying Congress each year.

It doesn’t have to be that way. A number of tax reform advocates have pushed for the Internal Revenue Service to adopt an online tax prep system similar to TurboTax and H&R Block’s, but for free. The basic idea is that the government already knows most of your tax information, so it could fill out what it knows about you. You then could simply log into your IRS account, tweak whatever updates you have, and send it off — or, if you wanted to try to maximize deductions, still have a professional look it over first.

But despite decades of trying — Ronald Reagan proposed such a reform, and a 1998 bill signed into law was supposed to accomplish it, and Barack Obama’s White House also pushed for it — the IRS has never actually adopted the policy, which would likely take another act of Congress.

Why? Joe Bankman, a leading tax scholar and professor at Stanford University, convinced the state of California to try such a program as a program in 2006, and though it was popular among users, it quickly got the axe from state lawmakers. The reason both behind the California system and why we don’t have an easier national one, he said, is in large part because of the giant sum of money H&R Block and TurboTax parent company Intuit spend lobbying members of Congress, compared to far more minimal advocacy on the side of the public. 

“You can’t blame a company for getting what it can,” Bankman told Vocativ. “But what’s happening, with respect to lobbying on taxes, is these companies are in every representative’s office, explaining things to them from their point of view. And on the other side, there’s no one.”

Whether those two companies spend a lot or a little lobbying Congress is a matter of perspective. Each drops around a quarter billion dollars every year, paying a handful of K-Street law firms a few hundred grand to saddle up to elected officials for them, according to figures provided by the Center For Responsive Politics, which tracks registered lobbyists. H&R Block spent $3,260,000 lobbying last year, a sum that is the 149th-most of the nearly 4,000 companies that registered lobbying expenses in 2016.

Neither H&R Block nor Intuit responded to request for comment about what specific aims they had in spending such sums lobbying Congress. 

If that seems like a lot, consider how much the two companies would stand to lose if the IRS began offering an easier version of its services for free. As it stands, H&R Block and Intuit, both of which heavily rely on tax filing services as their main product, respectively make around $4 billion and $3 billion in revenue every year.

The dream of implementing a system like Bankman’s at the national level lives on, however. On Wednesday, Senator Elizabeth Warren (D-Mass.) reintroduced her version a bill to create one, the Tax Filing Simplification Act of 2017, which would mandate the IRS create an optional program for easy tax filing by 2019.

“I am reintroducing the Tax Filing Simplification Act to stand up to these companies and give all taxpayers the option of free, simple tax filing,” she said in a statement.

The bill is co-sponsored by ten Democratic senators, though it’s unclear if it’ll gain further support. It does, however, have Bankman’s seal of approval.

“All that information is electronically sent to the government anyway. So a lot of what you’re doing is unnecessary,” he said. “With our ridiculously complicated tax law, this would make filing actually pretty simple for almost everybody.”