If Intuit's strategy is to spend billions to kill free tax products, then that would suggest that there's a huge reward for the next organization that can replicate Credit Karma's success. Is it really that difficult to build tax software?
Think of it as announcing a $7B X Price for anyone building this again.
And if you make a mistake in your software and the user gets audited, you can bet you’ll be sued by the user eventually.
On the plus side, it’s a lot harder to buy someone with morals than a VC backed startup.
You of course also have to build out distribution channels to acquire users which is also very costly.
EDIT: Changed "keep the tax code complex" to "keep tax filing complex", since someone asked for (and I couldn't provide) evidence of keeping the tax code itself complex.
I cannot.
It's slightly different I guess. But since a lot of the paperwork you have to feed into turbotax is already known to the IRS, it's possible the IRS having their own product would have really simplified things. Then again, gov websites are pretty hit and miss.
Literally no one is proposing that the tax system be changed so that you get a bill that you have to pay, every proposal is that the government should send you forms prepared with the information they have, and you can file different forms if have additional information.
You gotta complain about it being unfair for people in cash businesses to get that information or something, the lack of incentive alignment is not even close to a real problem with the idea.
"Each year, Americans pay billions of dollars to Intuit, the corporate owner of TurboTax, to help them navigate the byzantine nightmare of filing a tax return. And each year, Intuit reinvests a small sliver of that revenue into political contributions and lobbying efforts to keep taxes pointlessly complicated."
[0]https://www.opensecrets.org/federal-lobbying/clients/bills?c...
Anyway, I edited my comment to read "keep tax filing complex", which is much better documented in the articles, though I don't think it would change opinions or arguments, but in the spirit of being as exact as possible.
Most people take the standard deduction. For most people, the complexity of filing is relatively low.
The W2 and 1099 forms that people get contain just about 95% of the information needed to file their taxes.
The current process involves getting those forms, which the IRS gets anyway, and re-entering the information into a privately run tax website. If you do this on IRS free fillable forms, you’ll have to do a significant amount of extra effort (for example, TurboTax can automatically pull in your W2 with partial information while the IRS system requires that you enter in every value manually).
Just entering the W2 is a lot of the effort for people on the IRS Free Fillable Form system.
Let’s continue in the workflow. You’ve got your wage information entered. The main questions to answer are:
- What’s your filing status
- Did you do things that could be deductions (tuition costs, mortgage payments, etc)
- Are you poor enough or have special circumstances to get tax credits?
For a huge percentage of people, the IRS wouldn’t even have to ask your address to get this done. They could simply verify your filing status and ask the same kinds of questions that TurboTax does to determine which forms get filled out. They would even have to ask for fewer pieces of information because, unlike TurboTax, they already have your W2 and 1099 forms and many others like bank interest and retirement/HSA distributions on file. Again, most of the effort in TurboTax is just entering in the data from the forms and answering a question or two.
Taxes are only truly complex for a very small percentage of Americans who have built up enough wealth to have complex tax situations. For everyone else, they’re using free tax services, but are unnecessarily providing data to third party private companies and being upsold on unneeded add-ons constantly. Half of the time it takes to run through TurboTax is just declining all the unrelenting offers to pay them money.
Essentially, the problem here is that the IRS could literally copy the best tax software and just use that for everyone. Instead their offering (free fillable forms) is artificially terrible and functions as literal digital representations of paper forms instead of abstracting away the complexity.
Even for paper filling, the IRS could even have an advantage over TurboTax. Here’s how the workflow would work:
- The IRS receives wage and other tax forms from employers and financial institutions as they already do now.
- The IRS then prints out a customized form (automatically generated) that asks questions related to those forms they received. This would essentially be like TurboTax on paper.
- The form is mailed to each taxpayer.
- The taxpayer answers the questions and returns it with either payment/refund information or the IRS uses those answers to send you a bill.
- Taxpayers with additional deductions above the standard deduction could either be provided with a follow-up or be asked/opt to file some additional forms.
None of this is difficult to implement, especially compared to the alternative of dozens of tax filing firms implementing all of this separately.
The IRS is severely and chronically underfunded (a situation that gets worse every year) and can't even perform its basic tax collection functions at this point. Even if it were allocated the budget to make a TurboTax competitor (the complexity of which I think you severely underestimate) I am extremely skeptical that the resulting product would actually be as good as TurboTax. The net result could easily be us all paying (in the form of taxes) for software that no one uses anyway.
I think "IRS makes a better TurboTax" is basically a fantasy, and Intuit is a convenient villain to blame for that fantasy not coming true. They appear to be taking steps to discourage it, but I highly doubt they, or they plus all other lobbyists combined, are a but-for cause of the fact that filing taxes is difficult.
The purpose of their lobby is to prevent the IRS or state tax authorities from building their own versions and just letting tax payers use them.