Editorial Board

Let the IRS Do Your Taxes. Really

In the 2008 presidential campaign, candidate Barack Obama proposed a system by which the Internal Revenue Service would supply taxpayers with forms “pre-filled” with the relevant data, requiring them only to “verify, sign and return” the digital documents via the Internet.

As tens of millions of Americans were reminded this week, that vision of IRS simplicity and efficiency is no closer to reality today than it was four years ago. It doesn’t have to be that way.

In 2004, California’s Franchise Tax Board initiated a pilot program called ReadyReturn, which enables taxpayers with relatively simple needs to do precisely what Obama proposed, but on the state level. Relying on W-2 forms, the state fills out a tax form and sends it to a participating taxpayer, who reviews it and either signs off or requests changes. Taxpayers who are due a refund and sign up for direct deposit receive it within days of filing.

About 2 million California taxpayers who earn income only from wages (and from just one employer) are eligible for ReadyReturn, and an estimated 90,000 used it this year. The program, which has grown more popular each year, entails negligible costs; in fact, filing by ReadyReturn saves the state money compared with traditional returns. (It also eliminates the need for professional tax preparers, which has prompted Intuit, maker of TurboTax software, to spend heavily on lobbying and political campaigns in the state.)

In a 2006 paper for the Hamilton Project, Austan Goolsbee, a University of Chicago economist who went on to serve as chairman of President Obama’s Council of Economic Advisers, estimated that a similar “Simple Return” could save federal taxpayers more than 200 million hours and $2 billion a year in tax preparation costs. He estimated that as many as 40 percent of taxpayers would be eligible to file a “Simple Return.”

As we have argued, the U.S. tax code is in dire need of the kind of wholesale reform envisioned by the Simpson-Bowles commission. For multiple reasons, most of them political, such an overhaul will have to wait. Meanwhile, the IRS should move to ease the tax preparation and filing burden borne by millions of mostly middle- and low-income Americans whose taxes are a relatively straightforward affair. (While it’s at it, the IRS might want to send them “tax-receipts” that show the broad categories of federal spending their payments supported and in what proportions.)

If Washington can’t muster a better tax system, it can at least produce a better way of complying with the current one.

    To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at davidshipley@bloomberg.net .

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