TurboTax and H&R Block famously lobby the US government to make taxes more annoying to file to drum up demand for their products.[1] But as far as I can tell, they eachonly spend ~$3-4 million a year on lobbying. That’s… not very much money (contrast it with the $60 billion the government gave the IRS to modernize its systems or the $4.9 billion in revenue Intuit made last fiscal year from TurboTax or the hundreds of millions of hours[2] spent that a return-free tax filing system could save).
Perhaps it would “just” take a multimillionaire and a few savvy policy folks to make the US tax system wildly better? Maybe TurboTax and H&R Block would simply up their lobbying budget if they stopped getting their way, but maybe they wouldn’t. Even if they do, I think it’s not crazy to imagine a fairly modest lobbying effort could beat them, since simpler tax filing seems popular across party lines/is rather obviously a good idea, and therefore may have an easier time making its case. Plus I wonder if pouring more money into lobbying hits diminishing returns at some point such that even a small amount of funding against TurboTax could go a long way.
Nobody seems to be trying to fight this. The closest things are an internal department of the IRS and some sporadic actions from broad consumer protection groups that don’t particularly focus on this issue (for example ProPublica wrote an amazing piece of investigative journalism in 2019 that includes gems like the below Intuit slide:)
In the meantime, the IRS just killed its pilot direct file program. While the program was far from perfect, it seemed to me like the best bet out there for eventually bringing the US to a simple return-free filing system, like the UK, Japan, and Germany use. It seems like a tragedy that the IRS sunset this program.[3]
In general, the amount of money companies spend on lobbying is often very low, and the harm to society that lobbying causes seems large. If anyone has examples of times folks tried standing up to corporate lobbying like this that didn’t seem to involve much money, I’d love to know more about how that’s turned out.
I haven’t deeply investigated how true this narrative is. It seems clear TurboTax/Intuit lobbies actively with this goal in mind, but it seems possible that policymakers are ignoring them and that filing taxes is hard for some other reason. That would at least explain why TurboTax and H&R Block spend so little here.
I don’t trust most sources that quote numbers like this. This number comes from this Brookings article from 2006, which makes up numbers just like everyone else but at least these numbers are made up by a respectable institution that doesn’t have an obvious COI.
In general, I love when the government lets the private sector compete and make products! I want TurboTax to keep existing, but it’s telling that they literally made the government promise not to build a competitor. That seems like the opposite of open competition.
Joe Bankman decided to make easy tax filing his personal mission, and he spent $30,000 to hire a lobbyist to counter lobbying by Intuit, the maker of TurboTax software.
“I can’t cure cancer,” says Bankman. “But I can help simplify tax filing.”
I had thought that Patrick McKenzie claims here, that lobbying by intuit is not the reason why US tax filing is so complicated, and actually it’s because of a republican advocacy group, that doesn’t want to simplify tax filing, because that would be a stealth tax hike.
But rereading the relevant section, I’m confused. It sounds like the relevant advocacy group is in favor of simplifying the tax system, and in particular, removing withholding?
It is widely believed in the tech industry that the reason the United States requires taxpayers to calculate their own tax returns, which is not required in many peer nations, is because Intuit (who make Turbotax, the most popular software for doing one’s taxes) spends money lobbying policymakers to oppose the IRS creating a competing product. People who believe this have a poorly calibrated understanding about the political economy of taxation in the American context.
I will have to take notice about uncontroversial but politically inflected facts about the world we live in to describe why you must use the software you use. If you’d prefer to not get politics mixed in with your finances and software, mea maxima culpa. That said, a democratically accountable government which deputizes the private sector to achieve state aims is invariably subject to the political process, and this is on net a good thing. To the extent one has a complaint about the outcome, one’s complaint is not with some unaccountable or corrupt actor in a smoky backroom somewhere. It is with one’s countrymen.
In particular, the tech industry zeitgeist that blames Intuit for us needing tax preparation software fails to understand the preferences of Congressional representatives of the Republican Party. Any fairminded observer of U.S. politics understands the Republicans to be institutionally extremely interested in tax policy (and tax rates in particular), in the sense that doctors are interested in heart attacks. Their most recent platform includes the quote “Republicans consider the establishment of a pro-growth tax code a moral imperative. More than any other public policy, the way the government raises revenue—how much, at what rates, under what circumstances, from whom, and for whom—has the greatest impact on our economy’s performance.” This is far from the only flag proudly planted by the elected representatives who enjoy the enthusiastic support of about half of Americans for their views on tax administration.
The specific policy implications of those shared values are frequently outsourced, in a fashion extremely common in Washington and critical to your understanding of U.S. politics. Washington has an unofficial ecosystem of organizations and public intellectuals who, by longstanding practice, have substantial influence on policy. When a Republican candidate promises to voters that they are anti-tax, as their voters (particularly in primaries) demand they must be, the thing they will offer in support of that is “Grover Norquist gave me a passing grade.”
Norquist runs Americans for Tax Reform, a non-profit political advocacy group which opposes all tax increases. ATR is institutionally skeptical of withholding, because they believe that withholding allows one to increase taxes by stealth. I don’t think it is excessively partisan to say that, if one phrases that claim a bit more neutrally as “withholding increases tax compliance by decoupling public sentiment and policy changes,” the people who designed the withholding system would say “I’m glad the National Archives makes our design documents so accessible. We wrote them to be read!”
And, relevant to the question of whether Intuit controls U.S. tax policy: it can’t, because that would imply they have wrested control from Norquist. Norquist considers a public filing option a tax increase by stealth and opposes it automatically. (I offer in substantiation ATR’s take on a specific policy, which was bolded for emphasis in the original: “Americans for Tax Reform rejects the use of unauthorized taxpayer dollars being used to expand the IRS into the tax preparation business and urges states to reject participation in the program.” You can find much more in the same vein.)
Interesting! How did Norquist/Americans for Tax Reform get so much influence? They seem to spend even less money than Intuit on lobbying, but maybe I’m not looking at the right sources or they have influence via means other than money?
I’m also somewhat skeptical of the claims. The agreement between the the IRS and the Free File Alliance feels too favorable to the Free File Alliance for them to have had no hand in it.
As to your confusion, I can see why an advocacy group that wants to lower taxes might want the process of filing taxes to be painful. I’m just speculating, but I bet the fact that taxes are annoying to file and require you to directly confront the sizable sum you may owe the government makes people favor lower taxes and simpler tax codes.
As to your confusion, I can see why an advocacy group that wants to lower taxes might want the process of filing taxes to be painful. I’m just speculating, but I bet the fact that taxes are annoying to file and require you to directly confront the sizable sum you may owe the government makes people favor lower taxes and simpler tax codes.
This is what I remembered the piece as saying, but unless I’m misreading it now, that’s not actually in the text.
TurboTax and H&R Block famously lobby the US government to make taxes more annoying to file to drum up demand for their products.[1] But as far as I can tell, they each only spend ~$3-4 million a year on lobbying. That’s… not very much money (contrast it with the $60 billion the government gave the IRS to modernize its systems or the $4.9 billion in revenue Intuit made last fiscal year from TurboTax or the hundreds of millions of hours[2] spent that a return-free tax filing system could save).
Perhaps it would “just” take a multimillionaire and a few savvy policy folks to make the US tax system wildly better? Maybe TurboTax and H&R Block would simply up their lobbying budget if they stopped getting their way, but maybe they wouldn’t. Even if they do, I think it’s not crazy to imagine a fairly modest lobbying effort could beat them, since simpler tax filing seems popular across party lines/is rather obviously a good idea, and therefore may have an easier time making its case. Plus I wonder if pouring more money into lobbying hits diminishing returns at some point such that even a small amount of funding against TurboTax could go a long way.
Nobody seems to be trying to fight this. The closest things are an internal department of the IRS and some sporadic actions from broad consumer protection groups that don’t particularly focus on this issue (for example ProPublica wrote an amazing piece of investigative journalism in 2019 that includes gems like the below Intuit slide:)
In the meantime, the IRS just killed its pilot direct file program. While the program was far from perfect, it seemed to me like the best bet out there for eventually bringing the US to a simple return-free filing system, like the UK, Japan, and Germany use. It seems like a tragedy that the IRS sunset this program.[3]
In general, the amount of money companies spend on lobbying is often very low, and the harm to society that lobbying causes seems large. If anyone has examples of times folks tried standing up to corporate lobbying like this that didn’t seem to involve much money, I’d love to know more about how that’s turned out.
I haven’t deeply investigated how true this narrative is. It seems clear TurboTax/Intuit lobbies actively with this goal in mind, but it seems possible that policymakers are ignoring them and that filing taxes is hard for some other reason. That would at least explain why TurboTax and H&R Block spend so little here.
I don’t trust most sources that quote numbers like this. This number comes from this Brookings article from 2006, which makes up numbers just like everyone else but at least these numbers are made up by a respectable institution that doesn’t have an obvious COI.
In general, I love when the government lets the private sector compete and make products! I want TurboTax to keep existing, but it’s telling that they literally made the government promise not to build a competitor. That seems like the opposite of open competition.
Joe Bankman, better known for other reasons, had this idea:
I had thought that Patrick McKenzie claims here, that lobbying by intuit is not the reason why US tax filing is so complicated, and actually it’s because of a republican advocacy group, that doesn’t want to simplify tax filing, because that would be a stealth tax hike.
But rereading the relevant section, I’m confused. It sounds like the relevant advocacy group is in favor of simplifying the tax system, and in particular, removing withholding?
Interesting! How did Norquist/Americans for Tax Reform get so much influence? They seem to spend even less money than Intuit on lobbying, but maybe I’m not looking at the right sources or they have influence via means other than money?
I’m also somewhat skeptical of the claims. The agreement between the the IRS and the Free File Alliance feels too favorable to the Free File Alliance for them to have had no hand in it.
As to your confusion, I can see why an advocacy group that wants to lower taxes might want the process of filing taxes to be painful. I’m just speculating, but I bet the fact that taxes are annoying to file and require you to directly confront the sizable sum you may owe the government makes people favor lower taxes and simpler tax codes.
This is what I remembered the piece as saying, but unless I’m misreading it now, that’s not actually in the text.