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Yes, you're right that people in that camp are unlikely to review their tax filings from their 3rd party. However there is an incentive for that 3rd part tax company to save their customer as much as they possibly can. The bigger the refund, the happier the customer and the more likely they are to come back next year and give you more money. In the Planet Money episode they spoke with the Republican dude and his biggest point was that his goal was to support a system where people paid as little tax as possible, and this current system we have is just that.



> However there is an incentive for that 3rd part tax company to save their customer as much as they possibly can.

lol. No.

First of all, that myth already assumes a complicated tax code which requires a for-profit middleman. We should be able to minimize our tax exposure without paying corporations.

Secondly, the vast majority of filers don't qualify for loopholes. When every tool offers the same refund, competition is for the cheapest/simplest tax experience... while the industry as a whole is strongly incentivized to create an ever more convoluted system, ensuring their yearly rent-seeking continues.


If private tax filing products saved money for their users, as compared to a hypothetical, IRS-produced product, what are these companies worried about? They'd have a clear competitive advantage over the IRS product.


How could they save money, though? The tax code is the same in both cases, and most people's financial lives are not complicated enough to make it any kind of challenge to get the best refund.


Then the conclusion is the same: no reason not to let the IRS provide their own tax filing service.


If complicated taxes are a Republican anti-tax strategy, why did Reagan and the 1980s republicans pursue a strategy of vastly simplifying the tax code?

Doing taxes is a tax -- in hours and fees. Only the wealthiest people who can spend $10K on tax prep to save $100K via loophole deductions, oh.


Simplifying the tax code in the 80s was the public sales pitch. The real strategy was to dramatically cut taxes on the wealthy (e.g. by eliminating the top several marginal tax brackets).

But keep in mind, the Democrats controlled congress, so reform had to gain bipartisan support.


No-one paid the top brackets because the tax code at that point was riddled with ways to generate tax losses that reduced liability. The tax reform really was a good thing (unlike 90% of what happened under the Reagan administration)

https://en.wikipedia.org/wiki/Tax_Reform_Act_of_1986#Passive...


There is openly available IRS data on how many households actually paid highest bracket.

You are wrong that nobody paid it.


This chart doesn’t show evidence of a particularly dramatic cut in effective rates for the top 1% of earners:

https://taxfoundation.org/taxes-rich-1950-not-high/


The top 1% of earners today earn a dramatically larger share of total income than the top 1% in the 1950s.

If taxes kept up, they would have noticeably higher effective tax rates than they used to have.

P.S. The “Tax Foundation” is a right-wing “think tank” (i.e. activists masquerading as researchers) funded by billionaires and corporations.

I would however recommend reading the whole paper they cite, http://gabriel-zucman.eu/files/PSZ2017.pdf

> Government redistribution made growth more equitable, but only slightly so. After taxes and transfers, income in the bottom quintile stagnated (+4%) over the 1980–2014 period while it grew a meager 21% for the bottom 50% as a whole. That is, transfers erased about a third of the gap between macroeconomic growth (61%) and growth for the bottom half of the distribution (+1% before government intervention). Taxes did not hamper the upsurge of income at the top, which grew almost as much as pre-tax.

> The top panel of Figure II provides a granular view of who benefitted (or not) from growth, by showing the annualized real growth of pre-tax and post-tax income for each percentile of the distribution over the 1980–2014 period, with a zoom within the top 1%. There are two striking results. First, the vast majority of the population—from the bottom up to the 87th percentile—experienced less growth than the (modest) macro rate of 1.4% a year. For instance, the 10th percentile declined by 0.6% a year pre-tax (+0.3% post-tax); the 30th percentile stagnated pre-tax and grew 0.6% post-tax; the 80th percentile grew 1.2% pre-tax (+1.3% post-tax). Only the top 12 percentiles of the population achieved a growth rate as high or higher than the macro rate of 1.4%. Second, even percentiles 88 to 98 experienced unimpressive income gains, between 1.4% and 2.2% a year—in most cases less than the macro growth rate of U.S. incomes for the preceding generation, from 1946 to 1980. The only group that grew fast is the top 1%, whose average income increased 3.3% pre-tax and 3.2% post-tax, with growth culminating at +6.0% a year for the top 0.001%. The top 1% has pulled apart from the rest of the economy—not the top 20%.

etc.


Forget Reagan, they claimed they were trying to do it last year. Remember the post card?


By cutting the ability to deduct SALT they made tens of millions of people who would have otherwise itemized do a simple 1040. While not a postcard it did greatly simplify taxes for many people.

That said, most of those people are still going to see it as a travesty because they had to pay a little more (god forbid people rich enough to have thousands of dollars of SALT pay taxes on the income used to pay that SALT).


The idea is not to make the taxes deliberately complex, it is more about the notion of who is telling whom what is owed. A system where the citizen says "hey government, I think I owe you this much in tax because x" is fundamentally different than a system where the government says "hey citizen, you owe me this much in taxes, here's your bill".

In the second situation, the average (complacent) citizen will not look twice at the bill, but rather just pay it and get on with their life. In the former situation, the citizen is forced to have a 3rd party create a statement that says "I owe you this much because x" and because of natural incentives, the company will try to claim the maximum number of [incentives, loopholes, deductions, whatever you want to call them] so that the client saves the most amount of money. Of course the company takes its cut and I'm not arguing that greedy companies are the perfect solution. I'm just saying that there is more to the argument than simply it being a matter of lobbyists getting their way.


> If complicated taxes are a Republican anti-tax strategy...

Republicans only last year substantially simplified tax filing.


about the only simplification on mine was that I no longer have to file that I have a full year exemption on the health care law.

However I do have to file an extra sheet of paper now just to fill out a single line for foreign address that's been removed from the 1040.


Are you talking about the postcard publicity stunt?

* https://www.youtube.com/watch?v=0LhKoefZ2QI


> The bigger the refund, the happier the customer and the more likely they are to come back next year and give you more money.

Doubt it. We're talking 1040EZ filings by people in the 22% and lower tax brackets, not complex itemizations typical of 24%+ tax bracket filers.

The 5-digit PIN from the previous year's e-filing that's required if you want to expediently e-file this year is enough. Most people aren't going to remember that detail, but the e-filing service you used last year never forgot and they'll gladly auto-fill that block for you as a repeat customer.


> The 5-digit PIN from the previous year's e-filing that's required if you want to expediently e-file this year is enough. Most people aren't going to remember that detail, but the e-filing service you used last year never forgot and they'll gladly auto-fill that block for you as a repeat customer.

I was not asked for such a thing, and used a different preparer this year. I was asked to set a PIN for 2018, but I have never had to use a PIN I previously set. I have always been asked for the prior year's AGI for verification. What software asked you for a prior year's PIN to file this year?


There're at least 12 private companies listed by the IRS who offer some form of free filing service[1]. Direct from the horse's mouth[2] (my emphasis added):

> When self-preparing your taxes and filing electronically, you must sign and validate your electronic tax return by entering your prior-year Adjusted Gross Income (AGI) or your prior-year Self-Select PIN.

To be sure, a filer's prior-year AGI would serve the purpose almost[3] as well. It doesn't even matter what "code" is actually required of the filer, only that one is required at all for the convenience of e-filing. The point is it just needs to be something arbitrary enough for free filers to easily misplace record of but is routinely captured as yet another database entry by service providers. That's how repeat customers at the bottom end of the economic ladder are maintained...none of this "maximizing returns" feel good theory that the parent spoke of.

[1] https://apps.irs.gov/app/freeFile/

[2] https://www.irs.gov/individuals/electronic-filing-pin-reques...

[3] maintaining record of prior-year AGI has utility beyond just tax returns--e.g. applying for benefits and/or services which are limited to people below certain income thresholds--but the self-select PIN is truly arbitrary and serves no other purpose, so my gut feeling is it's a more effective mechanism


> To be sure, a filer's prior-year AGI would serve the purpose almost[3] as well. It doesn't even matter what "code" is actually required of the filer, only that one is required at all for the convenience of e-filing.

It matters to your statement, which is wrong as you made it.

It matters whether the "code" needed is something the taxpayer made up for this one specific purpose or is a number readily available on the form they are supposed to print and file, and can thus easily retrieve.

> maintaining record of prior-year AGI has utility beyond just tax returns

Everyone should be retaining at least three prior years of tax returns, so anything that helps prod them in that direction is a good thing.

> but the self-select PIN is truly arbitrary and serves no other purpose, so my gut feeling is it's a more effective mechanism

More effective mechanism for what? I personally think they should just ditch the PIN entirely and rely solely on AGI, for the reason I stated above.


It's quite apparent that you've completely missed the overarching point of this discussion.

> It matters to your statement, which is wrong as you made it.

What part exactly? You speak from narrow anecdote in your limited encounter with 1, maybe 2, online service providers and have provided precisely zero supporting reference otherwise. I've provided corroborating citation direct from the IRS.

> It matters whether the "code" needed is...and can thus easily retrieve.

No, it really doesn't. All that matters is that it's easily misplaceable or forgotten...the more arbitrary and useless, the better it'll serve the objective role of vendor lock-in in a world where options abound and financial incentives to the filer are the same as a direct consequence of the inherent simplicity of their case filing.

You've also made certain unjustified presumptions on the ease of retrievability. Once upon a time, at least one well known service provider would produce a digital summary of your filing only after the IRS had accepted the return (not to be confused with receiving it), and this personal copy was generated for free if and only if it was downloaded before the tax year rolled over. So if you forget to download it for personal record, they'd gladly reproduce the summary any time in the future...for a nominal fee. In the past, this dark pattern disincentivized e-filing with a different service provider in subsequent years, and it wouldn't surprise me if some still pull this tactic.

> Everyone should be retaining...

What everyone should be doing from a records management perspective is both completely irrelevant to this discussion and disconnected from happenings in the real world, especially as it pertains to individuals on the lowest rung of the socioeconomic ladder. It might surprise you at how many people actually fail to maintain a copy of their vehicle's registration and proof of insurance in the only vehicle that it would be applicable to, or how many people don't even have a copy of their own birth certificate. These are pretty damn important documents, yet surprise: the human condition is real and people are inherently lazy as fuck. That you actually expect the poorest and least educated in society in general to maintain annual records on something as obtuse as tax returns is quite naive. Do you really think the tax return service industry isn't actively exploiting the crap out of basic psychological shortcomings of society to the benefit of their bottom line??

> More effective mechanism for what?

It's the whole point of my original remark: identifying the fundamental mechanisms which are largely responsible for producing repeat conversion in an industry where options abound, the product is free, and little to no differentiating factors of value exist between competing service providers.

At the ass end of the totem pole, the game of repeat conversion isn't about which service provider is going to somehow provide a filer with the biggest tax return as the parent asserted, and to which I disagreed...we're talking about candidates who qualify for free filing; these are the simplest of turnkey cases, hence why the service is offered for free to begin with! It doesn't matter what you think about the pragmatic utility of the self-service PIN because the fact is it's one of two options mandated by the IRS as a requirement to e-file. Some service providers will require you to produce last year's self-service PIN to e-file, some will require last year's AGI...wouldn't surprise me if some require both.


The 22% tax bracket goes well above the median income. Meanwhile, in 2010 less than 15% of people filed the 1040ez.


Bottom end of 22% tax bracket is ~$43k/annum based on 2019 Notice 1036...that's a $23k margin before hitting the $66k AGI threshold for free file offerings.

That number is more like ~25mil, or just over 18% in 2017; +4.6% over previous year[1].

EDIT: I suppose I should probably ask what point you were trying to make? I didn't quite track where you were going with all that.

[1] https://www.irs.gov/pub/irs-soi/17in01pl.xls


Except the tax preparation industry must be taking a significant enough cut to make it lucrative to spend money lobbying. Is that cut smaller than the total extra tax that would be paid due to mistakes in the auto filing system? I'm skeptical.


Tax preparers usually file federal taxes for free while charging a fee to file state and local taxes. That's where they make their money.


I suspect (but don't know) that they make more off of the various up-sells for people with more complex filing situations. Also, the free filing is marketing. It's their foot in the door. If something like rapid return happened, they would lose that strategy.


So basically even if the IRS wanted to create a system, they would be competing with a free system anyway?

And the IRS wouldn't go out and do a system for each state.


If republicans wanted to make a system where people would save the most money we'd just reduce the tax loopholes and simplify the system - the system we have now actually only has the wealthy pay the least money.

Some would say the republicans think this is a feature.


This is not true. There are tons of bread-and-butter deductions for the middle class. If you do a cross country comparison of taxes, the biggest difference between the US and Europe is not the rich. It’s the folks making $40-100k, where our low brackets plus tons of deductions (mortgage interest, child care, child credits, etc.) drive the effective tax rate way down


Folks in Europe comparable to the ones you are talking about here (i.e. the 50th–85th percentile) are generally much more financially stable/comfortable than in the USA.

Varies a lot from country to country, but in general they have e.g. more-or-less functional healthcare systems, better parental leave, more vacations, easier access to childcare, stronger worker protections, ....


A lot of what you mentioned on our side of the pond is paid for by our social security contributions, not from our taxes though.


Social security contributions are a tax, just one earmarked for a specific budget rather than the general fund.


You can't really compare tax rates without considering other mandatory costs like health care. Include health insurance and the numbers don't look so good for the USA.


You're not wrong, but it should be noted that in some countries (DE, CH) people also pay health insurance premiums to private companies as well. It's just in those countries health insurance is non-profit (unlike the US).


Just a note that the mortgage income deduction, which is a travesty, benefits high-earners far more than low-earners; something like 70% of its benefits accrue to the upper class.


How do you differentiate deductions from loopholes?


Easy. Any deduction you don't use is a loophole, legislative compromise of yesteryear or not.




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