How Turbo tax is keeping taxes complicated

As we head towards US Tax season and the whole circus that surrounds it, I am as always bewildered how complex and how much effort has to go into filing your annual personal taxes, so much so, I’m behind and won’t be ready again. Worse still, for Tax Year 2012, I have my personal taxes and 2x businesses taxes to file.

Like so many things, Americans make, and thus assume taxes have to be complex. Businesses make marketing campaigns out of tax refund checks, you can get everything from interest free payments “until you get your refund”, to payday loan advances o n your refund check. And we all know that any kind of payday loan is the scum of the earth no matter how broke you are.

So why am I shocked, disappointed and angry to find out that the bellwether of tax filing, Turbo Tax aka owner Intuit, is not only against this, but actually spent some $12-million lobbying against a totally simpler process. It’s a disgrace. However, the longer I’m in the US, the more I’ve become disappointed with how selfish and backward these businesses are, like all businesses, faced with a challenge rather than adapt, and move on; look for new business, they defend their monopolies, or duopolies in this case, since apparently H&R Block also opposed this change.

So, whats the fuss?

  • Most of us in the employment of someone else have taxes taken from our paycheck
  • Many are outraged by this “interest free loan” to the government, but have you checked interest rates lately, good luck making more than the price of postage from the interest you’d get from most monthly tax deducations.
  • It’s your money if you get it back, if you don’t, it wasn’t yours in the first place
  • It’s obvious, if you regularly get a refund check, you should up your witholdings and have less deducted

In the UK it works just the same; only you don’t have the ridiculous end of tax season circus. Yes, the top 20% of tax payers, which included me when I was there, had to file annual returns. Yes, those with stock, shares etc. benefited from filing these returns as you can claim precisely sold, profit, loss, capital gains etc. Obviously those in self employment and those with complicated tax affairs had to file returns, but for the working person, you got a tax code which reflected

  • Previous income
  • Marriage status
  • Number of tax dependents inc. children and other qualifying dependants

The amount of tax deducted from your pay is based on that code. If you need to adjust your code, because of circumstances, or because its wrong, you can. Each year the government sends you a summary account, based on your earnings, deductions, and a new code for the following year taking into account any legal or tax code changes.

If your circumstances or the tax code change significantly, you can end up owing money, or getting a refund. The refunds in rare cases can be big enough to warrant a refund but are more normally handled by changing your tax code for the following year to balance out. If you end up owing the government money, if it’s a small amount, they can alter your tax code, if it’s a large amount, you have to work it out direct with them. And thats all there is to it.

Like so many things, here in America, eveything is a battle, no one trusts the government, and everyone hates paying taxes, even though they are quick enough to demand benefits, medicare or medicaid when they need it, even though most Americans pay less than 2/3 what the average UK worker does in payroll taxes. Honestly, I don’t understand why the taxes are done the way they are.

So it came as a complete shock to find that the US Government has been trying to setup the same process. There is no conspiracy behind it, just a much simpler way to handle the tax affairs of a couple of hundred million Americans. You would:

  • Still be able to file a separate tax return
  • Still be eligible to a refund for overpayment, or owe for underpayment

Think of the time, effort etc. saved once the system was up and running. Both the current President, and before you howl about the plot, and former President, Republican and tea-party icon, Ronald Regan supported simplified filing, using pre-filled forms.

Really, there is no plot, the government does a calculation on your tax anyway, only now it would share the result with you, instead of holding it in secret and waiting for you to file and then using it to decide to audit you.

In 2005, Norquist testified before the President’s Advisory Panel on Federal Tax Reform arguing against return-free filing. The next year, Norquist and others wrote in a letter to President Bush that getting an official-looking “bill” from the IRS could be “extremely intimidating, particularly for seniors, low-income and non-English speaking citizens.”

Unlike say all those very official, fake government letters they get now from loan sharks, life insurance sales, car warranty companies etc. that show up on a regular basis.

If you are considering using Turbo Tax or H&R Block this year to help with filing taxes, think again. They are like drug dealers, making you dependent on a broken system and keeping you there. Go find a local non-profit to help; pay a local tax attorney if you can’t do it yourself. Sure, they won’t help you model your tax return to get the refund check you want, even if you do owe money, but better that than funding lobbyists to keep you dependent.

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