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Comment by paxys | Hacker News Reader

This will never happen in North America because the existing payments establishment is collectively worth trillions of dollars (think Visa, Mastercard, Paypal, Square, Stripe, all credit card issuing banks, all smaller second and third degree players) and will be ready to spend a big chunk of it to lobby and keep themselves relevant. Look at the case with tax filings, for example.

The US government will never be permitted to enter a business area and displace existing corporations regardless of whether it makes life easier for citizens or not.

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This pessimism is pretty popular, and it's just wrong. It's not about whether the U.S. government will "displace existing corporations." It's about whether a publicly funded and developed solution to a problem is clearly better than a private solution.

Should the U.S. have an official tax preparation system? That would sure save a lot of people a lot of money, but I'm personally grateful for the fact that a bunch of private companies have been spending a lot of dough trying to develop good online tax prep utilities. Self-service tax prep is in a much better place than it was 15 years ago because of the efforts of those private companies. And an official option for tax prep would undercut those efforts. (At this point, of course, it's high time for the IRS to create an official option, and they are moving towards that.)

Congress is aware of the above concern. The lawmaking "meta" since the Reagan years is to not undercut the normal operations of a competitive market unless there's a clear reason to. But sometimes there are clear reasons to. That's why we have things like FDA rules that tell companies what can or cannot be labeled as "peanut butter" or "milk chocolate." It's why we strictly regulate the radio spectrum. It's why we have healthy anti-trust, anti-cartel, and anti-foreign-bribery laws. Congress understands traditional examples of market failures and is very interested in fixing them. But the tax prep industry, for example, is not an example of a market failure, so Congress is not excited about getting involved.

Getting back to FedNow, creating a standardized payment system to be used throughout the financial industry is a prime example of fixing a market failure: the difficulty of coordination, and the obvious benefit of getting every bank onto the same payment system. So I am not especially pessimistic about the prospects of this system.

> Should the U.S. have an official tax preparation system? That would sure save a lot of people a lot of money,

Would it? Seems like a conflict of interest to me. Down the road the government might be tempted to abuse its control of both tax laws and ubiquitous tax preparation software.

I think it would be better if:

- Tax laws and tax law updates are required to be released in machine-readable format (i.e. JSON) using a machine-parsable protocol (i.e. converted from "English" to "Tax Grammar")

- IRS was required to maintain a public API for submitting returns

This would lower barrier-to-entry of tax filing software and weaken incumbents' (i.e. Intuit's) lobbying power. Furthermore, IRS is free to build a tool if they want, so long as it is both open source and dogfoods the public API and public tax law data that everyone else has access to.

> the government might be tempted to abuse its control of both tax laws and ubiquitous tax preparation software.

Could you describe a scenario where this could be the case? What kind of things would abusive tax prep software do? Would it lie to get people to overpay? Why would the government take that approach instead of just levying directly from people's accounts and/or reducing their refunds?

Well the U.S. tax system is heavily dependent on deductions which the IRS often does not have information on. So I'd imagine a lot of people would go with the default when in reality they might be able to save money.

That said, Trumps tax law greatly increased the standard deduction so it's not as big of an issue any more.

> tax law greatly increased the standard deduction so it's not as big of an issue any more.

As of 2019, only ~11% of filers itemized. It would be a good idea to have a public website where 90% of filers could do their taxes for free.

I agree but was just pointing out one method through which this could be turned against filers. If the standard deduction was greatly reduced it could cause taxpayers to pay more tax than they needed.

Personally I hate the fact we have so many deductions. I'd love a simplified tax code but I think that would be a tough sell.

The government is naturally incentivized to maximize revenue. Individuals are incentivized to pay as little tax as they can, legally. Private tax prep software is pretty aggressive about identifying all possible deductions to reported income. The government would not be as motivated in designing their own system. You can see this in the paper filing forms, they have detailed instructions, but almost nothing on how to reduce tax paid, besides things like the child tax credit and earned income tax credit.

> The government is naturally incentivized to maximize revenue

This is a fundamental misunderstanding of the situation. The tax law is what it Congress decides it is. The law depends on taxpayers to report their incomes as well as deductions and other facets of their financial lives (e.g. household size, addresses, etc.).

A government-run tax prep site couldn't necessarily pull in all of your deductions, that's correct. But it also couldn't necessarily pull in all your income (especially business income, offshore income, etc.). It's mostly neutral in that respect.

But most Americans have at least a few deductions. How many Americans have offshore income? Especially the ones that would be relying on gov. tax prep?

In this case, it is mostly one sided

See: https://news.ycombinator.com/item?id=32513370

Roughly 90% of Americans file using the standard deduction ($13k for a single person, $26k for a married couple filing jointly). Median household income is ~$67k, so the median household is not itemizing.

The remaining 10% of people would not be bound to use the free public system.

You can qualify for a number of deductions without itemizing.

Correct, but in that case there is no impact to your taxes.

100% disagree with your comments on tax preparation. Something like 80%+ of tax payers could have their 1040s automatically generated by the government because they only have stuff like wage and bank interest income. The proposal was just to have the government send these taxpayers a summary that they can accept or amend, the default being they wouldn't have to do anything at all to file their taxes.

Intuit et al fought tooth and nail against this, because they knew it would cost them big time.

These companies aren't benefiting from "the free market", they are rent-seeking regulatory capture organizations.

"Something like 80%+ of tax payers could have their 1040s automatically generated by the government[.] The proposal was just to have the government send these taxpayers a summary that they can accept or amend, the default being they wouldn't have to do anything at all to file their taxes."

Sure, that sounds good on paper. But here's a list of people who would be hurt by this system unless they were sophisticated enough to realize that they should revise their return:

  - Most people with a kid  
  - Most people supporting a relative  
  - Most people supporting someone who has no income and lives with them  
  - Most people who made charitable contributions in 2021  
  - Many people with a home energy deduction  
  - Most people who participated in post-secondary education  
  - Anyone in the gig economy

That's a big list, and it's far from complete. So it's not clear that your proposed "do people's taxes, leave it up to them whether to acquiesce or not" plan is good for consumers overall.

> So it's not clear that your proposed "do people's taxes, leave it up to them whether to acquiesce or not" plan is good for consumers overall.

I disagree, if you want clarity, look at other countries (e.g. UK) that already do this kind of thing. There is no "how can we know?" argument to be made. And IMHO, It's so much better for consumers overall.

Looking at other countries is unproductive, since their tax laws and tax credit systems are completely different.

For example, in the UK, I believe where a child is living is tracked through some centralized benefits system throughout the year. That hugely changes the calculus as to whether an automated tax return makes sense. If the U.S. had a similar sort of centralized system for tracking dependents or at least children, then an automated return would make a lot more sense, since claiming children/dependents is a huge part of getting the credits you deserve, and it would be great if it were possible to do that automatically. But it isn't.

I've already explained why I think automated returns are bad in the United States. If you disagree, make counterarguments based on how taxes work here, not in some other country with an entirely different system.

> Looking at other countries is unproductive,

IDK, this is a variation on the good old "The USA can't do this proven common sense thing that delivers benefit to citizens in many other developed countries, because ... uh ... USA special!" (1)

There's a chance that it's correct, but institutions that cannot learn from examples right in front of them are "special" in a different way, not a good one. Being able to learn would set a better trajectory towards greatness.

1) e.g. see The "FedNow" thread, yesterday https://news.ycombinator.com/item?id=32510581 Also, any healthcare or gun control thread.

Note that some European countries like Nordics already operate like the parent comment. These corner cases are naturally included in the four page paper where you can mark any corrections with tick boxes and amounts. So it is definitely doable, and not very hard, because other countries manage to do it as well.

Agree with SideballOfDoom. Other countries do this, this isn't hard. Besides, most of your examples are specious. First off, it's not hard for the first page of this to be "any changes to your life situation?" which would be simple, straightforward, and account for the vast majority of deductions/credits in the real world (i.e. dependents).

Most of your other examples aren't really valid because the vast majority of people take the standard deduction anyway, so things like charitable contributions, home energy deductions etc. don't matter.

But most importantly, the whole proposal always leaves the "You're welcome to do your own taxes if you have anything we haven't addressed." It's just that Intuit didn't want to even allow this option because they know the vast majority of people don't have complicating factors, and they hadn't gotten really good at scamming "free filing!" users into buying upgrades they didn't need.

This isn't hard, and tons of other countries do this.

I shouldn't have called the home energy thing a "deduction." It is a credit. And in 2021, some amount of charitable contributions could be claimed on top of the standard deduction.

"This isn't hard" -- as illustrated by both my and your mistake, this is as far from the truth as could be. Everything related to taxes is absurdly hard, whether it's setting up the right tax prep system, the right level of complexity in the tax law, or simply the right return to file as a taxpayer. My overarching point here is that Congress made a certain value judgment as to one of these very hard problems—that a healthy industry dedicated to getting people's tax returns correct might be in the best interests of both the government and taxpayers—and this might not actually be the product of corruption.

I still don't buy, at all, the argument that "default do nothing" is better than "default pay TurboTax".

The fact is the vast majority of taxpayers do not have special situations, and it's straightforward to say "if you think you have any custom situation that may apply to you, file yourself".

And Intuit's behavior, as well documented in the ProPublica report, absolutely point to corruption and scammy behavior.

In fact, that‘s pretty much the first page of Turbotax as it is.

Anyone who works for a FAANG couldn't have their taxes done automatically - the IRS doesn't know the cost basis of your share compensation. Same for anyone with crypto trades, or more prosaically anyone who's sold anything at a flea market or garage sale.

Conversely if you buy and sell the same stock with two different brokers and cause wash sales, or do anything with HSA investments in California, TurboTax and any other consumer tax product will not get your taxes right, and it may not even be possible to do them properly by hand, so everyone is doing them wrong and the IRS just isn't noticing.

Good thing ignorance is a defense for taxes.

> Self-service tax prep is in a much better place than it was 15 years ago because of the efforts of those private companies.

I guess, if you're only looking at the US. My understanding of the history is very different. In 2001-2002, the US was already behind other countries since it had no e-file option. The IRS was considering an official tax prep service. Because Bush was in office and there was huge pushback from the tax prep industry, it was pitched that a public/private partnership would be the fastest way to "catch up."

In 2019, ProPublica runs a story about TurboTax's shady behaviors hiding and up charging for what was agreed to be a free service. It should cover 70% of tax payers, but in practice is only used by 2-3%.

To me, this looks like an example where the government explicitly tried not to replace a large, private industry and the result could only possibly benefit 30% of people (likely significantly fewer since much of that 30% will still require personal tax prep). Even after 20 years of fallout and very explicit bad-faith behavior, the threshold for change hasn't been crossed.

There are basically easy bank transfers in the U.K. which are almost always very fast but they aren’t used for most payments. You’d use them to transfer between friends/family and paying for something like rent (with a standing order) or moving money between accounts.

While the payments industry (ie Mastercard/Visa) is a big one, they do actually provide a service. The cards allow people to buy things on credit (so stores can let people buy things on credit without needing their own collections departments or taking on default risk) and they provide various consumer protection mechanisms (which consumers want even if they won’t care about buying things on credit and paying back the loan over a long time).

It also isn’t obvious to me that this market won’t see disruption. There are a lot of BNPL firms trying to get in on it, for example.

In the US, I've generally avoided debit cards (but still would recommend them to people who aren't good at budgeting) because while disputes are settled you're missing the money.

My brief experience in other European countries is that debit cards are common, but credit cards aren't. I've heard this is because of strict caps on fees, which means few promos and benefits (like the US has). Sweden has a digital p2p service called Swish. Small businesses seemed to prefer it, but was a little annoying because you had to key in the code or use your camera to scan their QR code. This wasn't a huge hassle for sending money to friends. From what another commenter said, the UK requires you to manually key in the sort-code and account number. I can see that preventing adoption for casual purchases.

I was never sure of what protections I had around fraud with other payment options. I imagine consumer trust will be difficult to build.

This has existed in Canada for a very long time via Interac e-Transfers and it doesn't cost anything. You can send money instantly from one bank to any other bank. You do this by sending to someone's email or phone number. The recipient can setup auto-deposit so the money is deposited instantly. For this reason, Venmo, Cash App, etc. makes no sense in Canada either.

Zelle is roughly that in the US. Where Venmo is an intermediary that makes money by having your money before you take the extra step to transfer to your bank (for free in 3 days or instantly for a fee), Zelle is bank account to bank account. Transfers with it show up as debit card transactions in my statement, and I can look people up with phone or email.

Interac is not really the same thing. It's much closer to Venmo, but with more integration with your bank. Mostly because not all banks are actually in the interac network and the transfers are between interac accounts, not bank accounts. You can set it up to autodeposit but it's still a "third" party layer more than actual interbank transfers.

What Canadian banks are not in the Interac network?

> The US government will never be permitted

Then why don't corporations regulate the government, instead of it being the other way around? Why did the minimum corporate tax rate just go up to 15%? Why is there any corporate tax at all? The US government pushes companies around anytime they see fit. They're a superpower with the world's most powerful military, the FBI, CIA, NSA, and dozens of prominent regulatory agencies that control every aspect of the US economy.

When they decided to go after Google, guess what happened? The founders of Google immediately ran away in fear. They promptly resigned simultaneously and shrank from view. They knew what would happen and they got out in front of it.

When they went after Microsoft, guess what happened? Bill Gates resigned from leading the company that he founded and had been in charge of for a quarter century. The most powerful, richest private citizen in the US gave up control over one of the world's most powerful corporations.

The feds are drastically more powerful than any private citizens or corporations. Corporations are run by people, and people are very easy to target and easy to break, especially when you have powers of an epic scale central government.

Even a company the size of Apple is barely a spec to the US Government (a government which is currently engaged with Ukraine in smashing the supposed #2 military, Russia, using just a modest flex of its weapons and capabilities). Only China's government comes close to rivaling the US Government for power, corporations are a joke by comparison.

If the feds want to implement an instant payment system, then that's exactly what they'll do, whether Visa or PayPal likes it or not.

> Corporations are run by people, and people are very easy to target and easy to break, especially when you have powers of an epic scale central government.

This is true of governments too. Tech lobbyists doesn't sway the people who make up the government that much. But oil, guns, and real estate very much do.

The Federal Reserve is not the US government. It is a private bank.

It's weirder than that. The Board of Governors of the Federal Reserve is an agency of the US federal government. The system as a whole has "a combination of public and private characteristics".

See the section "The U.S. Approach to Central Banking" of https://www.federalreserve.gov/aboutthefed/structure-federal... .

Thanks for this clarification. I had a hunch it was a weird mix of the two. In reality I'm glad congresspeople don't have a lens into the money printing business.

But they do. They control the Treasury and US Mint, who are the real money printers. The Fed controls the price of money for everyone else.

What do you mean by this? As far as I know, the Fed was established by an Act of Congress and it is overseen by a Board of Governors whose members are appointed by the President and report to the Congress. To me it doesn't necessarily seem too different from many other government agencies, the biggest difference being that it is self-funded.

Because of its autonomy it doesn't seem to fall well within any of the three classical branches of government, but it sure seems to me like a part of the government nonetheless.

> will be ready to spend a big chunk of it to lobby and keep themselves relevant

Or worse than just lobbying?

https://news.ycombinator.com/item?id=32511170

I think you’re wrong. The credit card system’s days are numbered. In 5 years I think digital wallets will be common in the US, and it won’t be because of anything the government did except get out of the way.

What is a credit card if not a kind of digital wallet?

I'm referring to a payment network outside of credit card rails entirely.

Sure, but most people don't care about that level of detail. Credit cards are essentially "digital" in the sense that most people care about.

I really doubt it. Credit is a fundamentally different system than debit with different use cases. US credit cards have all sorts of attractions for consumers, like cashback or frequent flyer miles. And they‘re still one of the most accessible ways to build credit score history.

Credit cards these days are pretty much usable as digital only; all of mine are addable to Apple or Google Pay, and usable at pretty much any contactless pay terminal.

Credit cards are popular because of government regulation, namely that you have better fraud protection on your credit card than your debit card.

If they go away it's because their credit product will be replaced by BNPLs, and transactions with trustworthy stores will move to FedNow to avoid that 3%ish interchange fee.

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