Comment by danso | Hacker News Reader

Comment by danso | Hacker News Reader

FWIW, Turbotax/H&R's hiding of their Free File site pages was discussed here about a week ago: https://news.ycombinator.com/item?id=19758126

They have since made their pages discoverable by search engines and have denied that it was intentional obfuscation. But the news in TFA is that apparently someone at (or formerly at) H&R leaked internal documents with explicit guidance:

> “Do not send clients to this Web Site unless they are specifically calling about the Free File program,” the guidance states, referring to the site with the company’s free option. “We want to send users to our paid products before the free product, if at all possible.”

(there's also interviews with former employees recalling meetings)

This is all "news" because Congress is considering a bipartisan tax reform bill that includes a law that would block the IRS from creating its own official Free File program. Senator Ron Wyden, the bill's co-sponsor, is now having second thoughts [0] and yesterday, NY Gov. Cuomo ordered a state investigation into the tax prep companies [1].

[0] https://www.huffpost.com/entry/taxpayer-first-act-free-file_...

[1] https://www.governor.ny.gov/news/governor-cuomo-calls-depart...

edit: changed "permanently block" to "block"

> The H&R Block spokeswoman said the company’s Free File offering grew 8.3% this year..

I wonder what was the growth of the paid products. Gut feeling tells me that it was far more than 8.3%.

I have said before (and it didn't do good to my karma but this is more important). I feel that USA Democracy (not the political party) has been corrupted and injured by Lobbying. "Corporate America" rules and the people are there just to get their blood sucked. Healthcare is ran by insurance companies with insane pricing. Talking to the state should be free. Submitting your taxes should be free. I am using (in the UK) a software, but it is my choice to use it. I could be using Excel files and have my accountant submitting printed papers. My choice. It is called freedom. Those companies are playing the people for fools. They will keep pushing so that the vast majority of the people will need to pay to pay taxes. It doesn't make sense :)

I agree with the fact that lobbying is a big problem. I think just about everybody agrees with that. However, the rest of your points aren’t so great. The tax services are quite convenient and useful paid services. Submitting free taxes in the USA is obviously an option. And to your point on health care: health insurance companies are not the only bad actors in the health care system.

Not convenient or useful at all. You know what would be actually convenient and useful? The government pre-filling most of your taxes for you, like in other countries.

No kidding. Especially if said government and audit and hence sue you when you made a mistake where your calculated numbers don’t match up with the government’s calculated numbers. Insane, if you think about it!

I agree. My comment was relative to the situation in which we live in.

> Talking to the state should be free.

It is free. Hiring a lobbyist is much like hiring an advertising firm. You could do the work yourself, but you pay for expertise and connections.

Where lobbyists have the advantage is they know who to call to get the meetings, and they have information from other clients they can leverage. The problem isn't that money changes hands, it's that votes change hands, and oftentimes, lobbyists are the ones best positioned to trade in this currency.

I agree. It is hard for me to wrap around that corporations can have more say in what the government does than the government doing something good for it’s (voting) public.

If the public would rather have simple tax filing then that is what any reasonable government (that wants to get elected and wants to actually collect tax revenue) should do, regardless of some private corporations quarterly numbers/stock price.

You can submit printed papers for free

Is there even a reason we have to file? My understanding is that if you don't file, the IRS knows about your W2 or 1099s anyway and will punish you, so what's even the point of filing yourself? Just have the IRS send a check or bill in the mail in April and end this nonsense industry.

This is how many of the countries around the world treat it. You can thank the folks that lobby the government on behalf of tax prep companies for this convoluted mess we have. The more confused we are, the more money they make.

It's more complicated than that.

There are very influential anti-tax and small government think tanks that vehemently argue against it, from the perspective that it reduces oversight.

Their position is that people just won't pay much attention to how much taxes they're paying if they don't have to fill in tax paperwork themselves each year. Their position is that if you make it invisible to end users, governments will just keep creeping up that tax percentage on end users and people will just accept it.

They're not wrong as regards to visibility, in the UK where tax is PAYE (Pay As You Earn), I don't think I ever paid more than a moments glance at the P60 (but I'd often check month to month that things were in the ballpark I'd expect. I'm a little more unusual in that regard probably). In the US I've had to pay close attention.

This argument never made sense to me.

How is the amount on a check or bill, if made clearly visible, somehow “not visible”?

Their actual goal is to make people resent taxes by forcing them to calculate themselves just how much money they are giving the government. It's less painful if you get something akin to a credit card statement from the IRS.

Ok, but why does making the process more painful make people lobby for lower taxes? The connection isn’t obvious to me.

To make this more explicit, presumably the chain of reasoning is as follows:

1. Make tax filing more painful.

2. As a general rule, people will set out to do that which reduces their pain.

3. Therefore, people will set out to do that which makes tax filing less painful.

4. People determine that lobbying for lower taxes will make tax filing less painful.

5. Therefore, people will set out to lobby for lower taxes.

Step 4 doesn't make sense to me because reducing total tax rate and reducing tax code complexity are orthogonal issues, and advocating for lower taxes will not in and of itself lead to a simpler tax code.

I disagree with the premise, but I don't think the idea is that making the process more painful will make people want lower taxes.

It's just an in-your-face reminder of how much you're paying in taxes, supposedly sending a stronger message to you than if the IRS were to send you a pre-filled return.

So the idea is, if you're more obviously reminded of how/why your tax money is leaving your wallet, you'll hate taxes more and lobby for lower taxes. You understand that doing so won't make filing taxes any less complicated (and in fact it might be more complicated if taxes are lowered through new deductions and credits that you need to prove eligibility for), but you'll expect to be paying less.

It's still stupid, but at least the chain of logic could potentially hold if you squint close enough and agree with the premises.

> It's just an in-your-face reminder of how much you're paying in taxes

But that’s just going back to my comment 4 levels up this thread. If it’s an issue of tax amount visibility and not tax filing pain, the latter is not needed for the former.

That smells like justification after the fact. We have decided to support the tax prep industry now how can we justify that stance?

That argument never held water with me.

Anyone who uses TurboTax etc. doesn't actually "do their taxes". They're basically just doing a data entry job, mechanically typing values into boxes from forms as TurboTax prompts them. In many cases people don't even do that, instead opting to direct TurboTax to automatically fetch their data from a payroll provider, bank, brokerage, etc. and do it for them. So for many people it's just 1) enter in financial institution usernames and passwords; 2) click "file my return".

And given that the IRS wouldn't just "send you a bill", but instead send a pre-filled return, people would have every opportunity to read through it and decide if they agree with what the IRS filled in.

There is materially nothing different. The tax prep lobby has just done a fantastic job of convincing people that it "feels better" to fill out your own taxes rather than getting a pre-filled return from the IRS. Which is bonkers, especially since that supposed "feel good" crap wastes billions of dollars every year.

(The US is also pay-as-you-earn, btw. If your employer doesn't withhold enough taxes from your paycheck and you don't make up for it by paying quarterly estimated taxes, you have to pay extra penalties come tax day.)

Do you know how tax withholding works in other countries? Like if you have two jobs, does one have to know about the other so that they know which bracket the salaries they pay you fall into?

In Australia, at least, when you fill out the tax paperwork for a new job, you can tick a box that basically means "Please withhold more tax so I don't get a bill at tax time".

Not that it really matters though, it all comes out in the wash.

In the UK everyone has a tax code that tells your employer how much tax you're paying. It doesn't tell the employer why you have that number, which could be for lots of reasons - eg. over / under paid in the past, working two jobs, etc.

Eg. my tax code is 1185L - essentially meaning I have a tax free allowance of £11,850 PA and have no additional income.

The IRS does not actually have all the information placed on the tax return.

For instance, all interest is charged as income for tax purposes, but 1099-INT is only issued for $10 and above. Similar restrictions exist for 1099-MISC but at a higher threshold, if you are a freelancer who receives a lot of small 1099 income from multiple sources, the IRS has no way of knowing that.

Conversely, if you’re eligible to itemize deductions, the IRS has no way of knowing what you gave to charities over the year. That’s entirely self reported and they only even ask for the receipts if you get audited. Charities don’t send records of their donors to the IRS.

> Charities don’t send records of their donors to the IRS.

In fact, charities are prohibited from valuing donations of property for the donor. The donor must do that, and justify the valuation if audited.

I always hear this argument, but all this just doesn't matter. It's optimizing for the wrong things.

The majority of taxpayers are not in that situation. They would benefit greatly from an IRS-provided pre-filled tax return.

For people that are in this situation, the IRS will send them a pre-filled tax return with incorrect data. Then they have the choice to either start with the pre-filled form and make corrections, or start from scratch with their own data. They are no worse off (and possibly much better off, if the corrections are minor) than they are under the current regime.

Regarding itemized deductions, with the 2018 tax year changes, the standard deduction is so much higher (and SALT deductions so much limited), that even fewer people than before will itemize. And the percentage of people who itemize already wasn't that high. But again: people who do itemize could merely correct the pre-filled form the IRS sends, or start from scratch if they really want to.

This is true. I still file using the itemized deductions but that’s because I am a single software developer, live in a high-tax state, and have a decent amount of charitable donations which get me above the standard deduction threshold.

I suspect we will eventually see an IRS prefilled form, anti-tax activists and the tax filing industry can only hold it off so long. Some amount of people will end up overpaying their taxes because they choose to use the prefill rather than itemizing, and some people will feel more entitled to cheat on their taxes (e.g. waiters not reporting cash tips) but then we already see that happen today anyway.

In addition to the penalty you'd incur, the IRS is unlikely to dig into your deductions and credits with your fervor, so they will likely compute a number that is "quite suboptimal".

There are also multiple ways of doing things, and picking one path may be strategic to you (if you expect more or less income in the following years). Giving up on this flexibility and its ramifications will affect your outcome negatively.

For simple filings, yes, it should be possible for them to give you a bill that is close to what you'd compute yourself.

This is my experience for the US system.

I think the general idea would be for the IRS to provide you with the completed tax return. This should be sufficient for a vast majority of people who only earn employment income.

You would then review the return and could update/file a return if you have additional deductions or business income that would not otherwise be reported to the IRS.

I believe the UK and some other European countries already have this system.

The UK tends to do its tax incentives a different way.

The government favours them as subsidies at point of purchase, rather than something you do at the end of the year. That actually works out a lot nicer as a tax payer, as you don't need to have the full amount of money up-front, and also means you're way less likely to miss out on some of them.

For maybe 90% of UK employees you don't need to file any kind of tax return, your employer handles all that for you.

If you do have some uncomplicated deductions (eg. you are a higher rate tax payer and have made large donations to charity, or have business expenses which were not paid by your employer) you can phone the tax office or ammend them online.

Only those in more complicated situtations need to file anything, which most people do through the tax office's website.

> the IRS is unlikely to dig into your deductions and credits with your fervor, so they will likely compute a number that is "quite suboptimal"

Which would be fine by me, in all honesty. Let the IRS compute a "basic" return for you. If you want one that digs deep and actively minimizes your tax bill, then you can get your taxes done in one of the more traditional ways.

My (very limited, anecdotal) experience is the opposite. When filing in ~'08, there was some stimulus credit I didn't claim, like $400, which I was eligible for.

After filing, I got a letter that said (in more formal language) "oh, you missed this, we're direct depositing it."

In any case, even for stuff the IRS might legitimately not know about, it would still be a tremendous simplification to reduce it down to, "Hey, here's a list of things that have deductions or credits. If you think something's missing, enter the info."

I highly recommend Episode #760 of Planet Money, which talks about what happened to ReadyReturn, which was a proposal to have the government send you a pre-filled tax return.

https://www.npr.org/sections/money/2019/04/03/709656642/epis...

Transcript: https://www.npr.org/templates/transcript/transcript.php?stor...

It could be done, but it requires the IRS to be given far more resources, and for it to change the filing deadlines and reporting requirements for lots of dependent forms.

It also requires all the states' revenue departments to coordinate with the IRS, because if everyone needs to file a correction based on state taxes anyway the system doesn't make much sense.

I'm fine with all that if it needs to be done.

We can stop wasting billions of dollars a year on the tax prep industry and instead send a tiny fraction of that amount to the IRS so they can beef up their operations.

The one issue I see is that a lot of people expect to be able to file their taxes (and get their refund) by early February. People who have brokerage accounts (and other things) generally can't do this, as brokerage tax forms aren't due until mid-March. Since the IRS wouldn't know who does and does not wait on brokerage forms, they'd have to wait on everyone, and delay sending out pre-filled forms until late March. A lot of people would be pissed about not getting their refund in early February like they're used to. (Personally I think this is a dumb thing to get pissed about, but at the end of the day you have to convince voters it's ok, and the backlash against this would be huge.)

Requiring that brokerages and other entities with a later deadline move their deadline up to late January just might be a non-starter for some. Then again, if I look at my 1099-DIV and 1099-B forms, it's not clear why it takes so long to prepare them. All it takes is a DB query against my transaction history for the year that could be done on January 1st; no need to wait 2.5 months.

Certainly some forms couldn't be prepared until businesses close their prior-year books, but I think that'd affect a small minority of taxpayers.

I will assume that although we think the 'gov' knows all about our financial affairs, in reality they don't. E.g. receive some inheritance, selling of property with profit, started trading forex and you got income from that.

There are many unknowns, perhaps not for you, but for other people. Also you need to file in order to have this 'discussion'/exchange. Perhaps the state erroneously thinks you made 500k and is taxing you accordingly when in reality you made 100k. You then prove the state wrong (whichever way) and you save yourself the tax$ and the pain.

For the average wage earner with uncomplicated investments the Australian government knows exactly what I have to pay. I log in and all my income along with divdends are right there pre-filled. There's nothing else to do but sign off on it.

Maybe it's different elsewhere but here tax it's simple, all electronic and a free service provided by the tax office for the majority of Australians.

Other countries that have pre-filled tax returns also have this problem. They solve it just as you'd expect: you correct your pre-filled return with the information the tax authority doesn't have.

That's still less painful than doing the whole thing from scratch, and the majority of people don't have this situation, so they have very little work to do.

Let's remember that just because there are edge cases, that doesn't mean you should abandon hope for making the common case easy. The best user interfaces make the common case easy and the uncommon case possible.

There is nothing in the law that would permanently prohibit the IRS from creating its own Free File program. Your first article even suggests that one modification would be to simply add that a sentence saying that the IRS is allowed to do that, and the change is that simple because that sentence would not contradict anything else in the bill, as Wyden initially explained.

The concern is that putting the Free File program into law would somehow make it less likely that the IRS would create its own program.

Yes you're right, I meant to write "block" and remove "permanently", because Sen. Wyden said he was told that the law would allow the IRS to make a proposal:

https://www.vox.com/2019/4/9/18301943/last-minute-tax-prepar...

> (UPDATE: After this post was published, Senate finance ranking member Ron Wyden’s office pushed back on Elliott’s report, saying they’d received confirmation from the IRS chief tax counsel that the bill as written does not bar the IRS from designing their own direct filing product, if they give 12 months’ notice. It’s likely the tax prep industry would challenge the IRS if it tried to do that.)

According to Bloomberg, rewriting the law might require sending it back to the House for a new vote:

https://news.bloombergtax.com/daily-tax-report/senate-may-no...

The disregard for facts by power groups is amazing.

And the fact that it works... is even more amazing.

It's like 1984.

I mean, it's not even a bad fact. There's no reason to hide the fact that they push people to the paid product. That is what is expected of businesses. I mean, why lie about it? For me it's more insulting to get lied to like this. It's so weird.

But then I see what happens all around me and I remember it works for the majority, or it wouldn't happen.

This isn't directed at political parties, it is about how power is handled by those who wield it, and how those who receive its influence act. You'll see the same dynamics in any large powerful entity and it's admirers: political parties, companies, religious institutions, even NGOs... talk to their fervent supporters and the conversation becomes super polarized where obvious facts are denied, obscured, minimized, or in general disregarded in favor of a vision. Even things that come up on mainstream news outlets will be dubbed 'conspiracy'.

Even saying something completely true and factual which someone won't disagree with, if it casts a negative light on powerful institutions they admire, a major percentage of the population will attack you verbally and put out every answer as if it was a personal attack. I guess most people lack self identity outside of their affiliations? I don't know that part.

But I believe the reaction of the admirers pushes companies and other powerful entities to act in a way that disregards facts. They are speaking to the admirers. They are engaging in persuasion.

Does anybody know why in the world Wyden was behind this? I thought he had a pretty good grasp of things until now.

The bill encompasses many things besides this provision. But Wyden did write a letter on April 14 to the NYT in response to an editorial criticizing the tax-prep provision: https://www.nytimes.com/2019/04/14/opinion/letters/taxes-con...

As a Brit, I know little about the US tax system - does every citizen need to file a tax return?

In the UK, income tax is handled between employers and the government, so the vast majority of people don't need to file one.

Yes [1]. And prior to WWII, there was no withholding and everyone had to file quarterly. During WWII, withholding was introduced so the employer is now responsible for filing quarterly tax estimates, although if you are self-employed, you need to do that anyway (as you are your own employer).

[1] Unless you made below a certain threshold (which is quite low), but you are still encouraged to file anyway.

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