Archive for the ‘Taxes’ Category

Best Practices in Tax Administration: Comments to Senate Finance Committee

Thursday, April 28th, 2011

The issue of government-prepared tax returns was discussed during the April 12, 2011 hearing of the Senate Finance Committee, Best Practices in Tax Administration: A Look Across the Globe.  Joseph Cordes of the George Washington University and I submitted comments to the Committee, based on our paper Should the Government Prepare Individual Income Tax Returns. The comments and the paper will be published in the hearing record.

TPI’s paper examines evidence about the costs and benefits of government-prepared or pre-populated tax returns and concludes that adopting such a tax system is not advisable for the U.S.  Other countries use such systems, including the United Kingdom, as does the state of California.

Cost savings for individual filers would likely be modest at best because checking a return for completeness and accuracy requires much of the same compliance work as preparing a return.  Only 3 percent of eligible filers in California have chosen to use the pre-populated returns provided.  This suggests that most people do not believe it is to their advantage to use the system. In addition, IRS costs could increase since the agency currently lacks the essential electronic processing capabilities and the staffing to implement a return-free system.  Third-party costs—those   of employers, financial institutions and other payers of income to individuals—could rise substantially because reporting deadlines would have to be advanced in order to provide timely tax refunds.

We also advise in the comments that, beyond questions of costs, government preparation of returns raises challenges and difficult issues at the policy and operational levels.  These include:

• Taxpayers would become less cognizant of the incentives embodied in the tax code and their personal and family finances.

• Risks of error would result from stretched IRS capacities, particularly as the agency’s mission has been significantly expanded under healthcare reform.  The UK’s system has encountered major accuracy problems.

• Taxpayers who are unwilling to challenge an official IRS document would nevertheless retain sole responsibility and liability for errors in government-prepared returns.

• IRS preparation of individual returns could compromise taxpayers’ privacy and data security. The government mailing pre-completed tax returns could result in privacy breaches with returns sent to incorrect addresses when people move. Similarly, the IRS posting returns on the Internet, seeking electronic signature, presents risks of breach and cyber-crime.  This risk may be greater than in the private sector because firms face stronger financial incentives to invest in sound security practices in an environment of rapidly advancing technology and changing threats.

• Return-free systems cannot be readily adapted to the U.S. system, which uses tax incentives as a means of implementing social policies. Other countries that have adopted pre-populated returns have far simpler tax codes than the United States.

Our comments and the complete paper are posted on the TPI website.

Tom Lenard on five Q’s on tech

Tuesday, September 28th, 2010

Last week, Rob Haralson did a quick interview with TPI’s Tom Lenard for his site five Q’s on tech.

Tom discusses why he thinks policymakers looking at privacy issues are going about it all wrong, network neutrality, and upcoming TPI projects.

Video is here:

Five Q’s with Tom Lenard, Tech Policy Institute from on Vimeo.

Technology and Taxes

Monday, May 17th, 2010

Tax scholars debated policy issues affecting technology and innovation at the National Tax Association’s Spring Symposium May 13 and 14.

Among the presentations, Peter Merrill of PricewaterhouseCoopers argued that to alleviate economic distortions the U.S. should reduce corporate taxes and place less reliance on the taxation of worldwide income.  Merrill emphasized the growing importance of intangible assets. Harvey Rosen of Princeton University and former Chairman of the Council of Economic Advisers said economists widely agree that a value added tax is equivalent to a tax on wages. Jason Furman, Deputy Director of the National Economic Council, argued that the President’s policies would improve the long-term budget outlook once they addressed the immediate problems of strengthening job growth.

Janet Holtzblatt explained tax and health models behind Congressional Budget Office estimates of health reform and Joseph Antos of the American Enterprise Institute analyzed the merits of alternative subsidy schemes for health insurance. Antos argued, contrary to many analysts who believe they are equivalent, that limiting the tax exclusion for health insurance would increase tax progressivity while the “Cadillac tax” enacted in health reform is regressive.

Joseph Bankman of Stanford University advocated that the IRS use technology to simplify tax filing and reduce taxpayers’ burdens by providing pre-prepared returns with information it already has. Nina Olson, the National Taxpayer Advocate, recommended that Congress require the IRS to study the proposal’s resource and feasibility implications, noting IRS administrative constraints and the need to move up deadlines for third-party information filing.  See TPI’s event “The Boundaries of Government in a Digital Age: Should the Government Prepare Personal Tax Returns?” and stay tuned for a forthcoming paper on this topic.