"Rally at US Sen 0195 Senator Elizabeth Warren" by Edward Kimmel Licensed under CC BY-SA 2.0

Sen. Elizabeth Warren (D-Mass.) introduced legislation on Wednesday that would create a government-run tax preparation service managed by the Internal Revenue Service (IRS). 

The proposal, often labeled by Democrats as “return-free filing,” is a terrible idea and a longstanding priority of progressives in Congress. Warren’s bill would replace the existing system of voluntary compliance that relies on Americans filing their own tax return with a system where the government controls tax filing for individuals.   

Democrats included a similar proposal in the House-passed version of their trillion-dollar tax and spend bill. 

Below are 5 reasons to reject Warren’s call for the IRS to takeover individual tax preparation. 

“Tax Trap” for low-and-moderate-income Americans 

The IRS lacks the information it needs to prepare tax returns and would put tax credits disproportionately claimed by low-and-moderate income filers at risk. 

Even the Progressive Policy Institute (PPI) stressed this concern in a report warning that a “return-free” system could be a “tax trap” jeopardizing Americans qualifying for the earned income tax credit (EITC). 

 “The IRS does not have the necessary information in its databases to accurately determine a low-income taxpayer’s eligibility for EITC and/or correctly calculate the amount of credit due to the taxpayer—indeed, far from it. The EITC is based on a stew of residency, family relationship, and income limits, with complex tie breaker rules. And like a giant puzzle, it requires deep knowledge of the personal lives of people living in the same household or family unit, with who else, for how long, and what their relationships and incomes are, just for a start.” – Progressive Policy Institute

Increased Potential for IRS Snooping 

The IRS has a particular habit of abusing and misusing taxpayer information. Last July, the IRS leaked stolen private tax returns to a progressive media organization that then published them.  

A 2016 report from the Treasury Inspector General for Tax Administration concluded that the IRS lost 1,000 laptops containing sensitive taxpayer data that contract employees used. In 2015, hackers stole the personal data of 330,000 taxpayers using a tool on the IRS website to steal tax forms. 

No additional information of private individuals should be collected by the IRS when it fails to protect the current information it gathers. 

Compliance burdens 

A recent study from PricewaterhouseCoopers threw cold water on progressive claims that “return-free filing” would reduce compliance costs for taxpayers. In fact, the report found  that compliance burdens on individual income tax under our current tax filing system have decreased by 40 percent since 2005. PricewaterhouseCoopers warns that such reductions in compliance burdens would be threatened by significant new costs created under a government-run tax filing system. 

Here it is straight from the report: 

“Because a significant portion of the population has self-employment income and a greater number use above-the line deductions, the pool of taxpayers eligible to use a return-free system may be limited without a substantial expansion of information reporting. Such an expansion would include significant new costs, not only in terms of administrative burden on taxpayers, tax administrators, and third parties, but also burdens with respect to taxpayer privacy.” 

Conflict of Interest 

Government-run tax preparation would create a significant conflict of interest in which the IRS would be responsible for calculating a filer’s tax liability and for managing contested tax returns. This would create an incentive for the IRS to overcharge taxpayers or withhold information from filers to maximize revenue.  

IRS Should Not Be Expanded 

The IRS struggles to perform its existing core responsibilities. 

The backlog of unprocessed paper returns at the IRS has grown to over 21.3 million in the last year. Additionally, refund delays for paper-filed returns have exceeded six months, with many filers waiting 10 or more months to receive their refund.  

At the end of the 2021 tax filing season, there were more than 35 million unprocessed tax returns that required manual processing, “a four-fold increase from the 7.4 million unprocessed returns at the end of the 2019 filing season,” according to the same report. 

Customer service continues to be a major failure of the IRS. In 2018, the IRS was ranked last out of 15 federal agencies in its ability to provide quality communication. Taxpayers wishing to communicate with the IRS are unlikely to find real people to talk to and must navigate a confusing automated phone system, interpret agency acronyms, and function names. 

Contributing significantly to growing list of IRS failures is the fact that 53% of IRS employees are still working remotely, according to April testimony from IRS Commissioner Charles Rettig. The IRS should not take on new responsibilities while failing to complete the responsibilities Congress has already assigned to it. 

Americans for Tax Reform opposes Warren’s IRS takeover of the tax filing system and urges all lawmakers to reject Warren’s government takeover of the tax filing process.