The Internet Should've Made Tax Filing A No-Brainer. It Isn't, But Here's What You Can Do About It

One hidden cost of going to college is being asked annoying, irrelevant questions because of what you majored in. I studied economics, which makes strangers assume at least one of two things: that I care deeply about the stock markets, and that I'm somehow better at doing my taxes than them. I'm writing about taxes here, now, not because I am a tax whiz but because they're hard — and because there's no good reason why they aren't easier.

The first time I ever filed my taxes, I did it through TurboTax. All told, it wasn't a complete headache; apart from a minor existential crisis about being "a real adult," and some grimacing over how small my refund on one-third a year of taxable income was, the process was smooth. The software I had seen on Circuit City shelves as a kid (y'know, when Circuit City still existed) had come through… for a price. Oh, if only I'd had Digg's own guide to filing your taxes then.

I didn't know then that Intuit, the makers of TurboTax, are notorious for lobbying against any and all changes that would make filing taxes simpler. I didn't know that taxpayers making under a certain amount (this year it's $66,000) are entitled to use completely free tax preparation and filing software, either from other partner companies or even through TurboTax! You know I didn't get a pop-up telling me that was an option that first year. I didn't know, thanks to Intuit's huge advertising budget, the ubiquity of those CDs on Circuit City shelves (which Intuit still sells, wild) and all the other factors contributing to TurboTax's Kleenex-like brand recognition that there are plenty of competitors that don't just accomplish the same end goal, but practically match TurboTax point-for-point in features and presentation.

Now, plugging my W2 into a free tax filing application is certainly easier than filling out a 1040 by hand, but settling for that would be like settling for crawling on my hands and knees just because it's quicker than doing the worm to get around. For the majority of Americans — people claiming standard deductions with little in the way of other complicating statuses or paperwork — paying their taxes should be practically automatic. Politicians and tax preparation companies love to talk about the strides they've made in reducing the burden of doing your taxes (if not in reducing your tax burden), but let's examine the ways in which our tax system fails to measure up.

Our 'Postcard' Tax Forms Are No Simpler, If Not Worse

If there's one subject that's particularly well-suited to Vox's carefully cultivated wonky-but-relatable explainer format, it's the absurdity of filing your taxes. The popular Republican response to people's tax process woes has been to preach the gospel of a postcard-sized tax form. This year, in response to the Tax Cuts and Jobs Act that Republicans passed in 2017, the new 1040 form is shorter… but as Vox writer Matthew Yglesias accurately predicted, it's as much if not more of a pain to fill out by hand than before. The old 1040 is to "Moby Dick" as the new 1040 is to "Infinite Jest"; both are intimidating, but the latter makes you go digging through copious footnotes (six forms on top of the condensed 1040 form) in order to understand what the hell it is you're reading.

The mock-up postcard tax form that you can see Paul Ryan whip out with glee in Vox's video version of Yglesias's analysis below, is downright laughable compared to the actual new 1040 that Republicans are claiming as a policy win. It stops being funny when you remember that the tax form could reasonably only have a dozen or so lines if Republicans got their way by eliminating most deductions and by implementing a regressive flat tax, which would further exacerbate America's wealth inequality.

As Jim Tankersley pointed out at The New York Times when the new 1040 was unveiled last year, anyone who chooses to do their taxes by hand (say, because a lame duck Speaker of the House told them it was easier) could actually contribute to slowing the IRS down since paper submissions are harder to process. Processing digital is fast, an actual postcard-size form would be slower and, well, an abbreviated 1040 with up to six additional forms is some Ralph Wiggum-level thinking.

The only silver lining to this is, since the standard deductions have increased for single- and joint-filing taxpayers, in theory fewer people will bother with deductions in the first place. Or, if you're 1) a stickler for understanding a system or 2) someone affected by unwelcome changes from the Tax Cuts and Jobs Act, the more confusing form may compound the time you waste on comparing the deductions you could take with the standard deduction. In practice, it seems that improving the experience of doing taxes was actually pretty low on the Republican priority list.

Intuit And H&R Block Are Notorious For Lobbying For Bad Free Filing

There's a very good chance you've already read ProPublica's numerous reports on how, on top of charging you handsomely for their online (read: low overhead) services, Intuit and H&R Block have spent millions on lobbying against pre-filled tax returns. Let's take a step back from the obvious sins — charging as much as they do and snuffing a far simpler system — to look at the not-so-benevolent free filing regime they helped design.

According to MarketWatch, about 97 million Americans are eligible to use software provided by the Free File Alliance (FFA) in partnership with the IRS, but only about 3 million will end up doing so. Executive director of the FFA Tim Hugo called the pact "a philanthropic endeavor," which I suppose fits if you take a pessimistic view of philanthropy that calls serving three percent of its target population a laudable model.

Here are three reasons why FFA software is underused. First, it isn't advertised: only in the last year did the IRS and the FFA reach an agreement where previous users would receive emails reminding them that the free software exists (compare that to what your inbox looks like from January to April if you've ever paid for TurboTax). Second, there are several humongous asterisks that come with FFA software — just look at the 12 available options and take note of how many only let you file with incomes below $66,000 and at how many states don't let you file free state returns with the software. Third, when they're not merely trying to upsell you, FFA companies still require you to consent to letting them keep your information and agree to mandatory arbitration. Even if 70% of taxpayers are eligible to use the system, how and why are they going to use it if 1) they don't know about it, 2) it's difficult to navigate and 3) you've got to waive your privacy and legal recourse options for the privilege?

So Far, The Main Challenger To Bad Free Filing Is… Mediocre Free Filing?

The biggest challenge to the FFA in recent years hasn't been legislation pushing for automated tax filing: it's Credit Karma. In 2016, Credit Karma announced they were launching their own free tax-filing service that's outside of the FFA regime — according to a recent press release, Credit Karma is now the fifth largest tax preparation service in the country.

If you've already used Credit Karma's tax service before, or any of their credit monitoring services, then they're arguably not a bad choice to go with. The product still has some annoying limitations¹ (e.g. you can't file multiple state returns) and as always you should at least glance over their terms, but it's not a horrible option for people who're already in the company's product ecosystem or who now make over the $66,000 FFA filing cap but who are accustomed to online free filing already.

On the other hand, if you're eligible for FFA products and aren't already a Credit Karma user, you should consider how Credit Karma affords to offer you its services for free: by using your data to show you tailored ads. This is hardly any different from the way they provide their free credit services, which is why I think it's a bit more OK to go with them if you've already used said services — ever-so-slightly better, in a hellscape where every company you interact with wants to hoover up your data to show you ads, to give it out to as few of them as you can. You can opt out of connecting your tax data to the other info the company has on you, if you so choose.

It should not be surprising in the least that this is how Credit Karma operates: after over a decade of the FFA maneuvering to keep free electronic filing (and effectively paid filing) to a select cabal by way of lobbying the government and building subpar free alternatives to its premium offerings, two options present themselves. One is an actual push for free, government-operated tax filing systems, and the other is for other private companies to swoop in and offer a free alternative that's supported through an alternative business model. Instead of handing money over to a company like Intuit that's effectively used the law and obfuscating marketing practices to take money from taxpayers who could and should be filing for free, you can give Credit Karma a chance to offer you deals on loans and credit cards. Personally, I think the latter is a slightly better option, but past a certain income level I'd much rather pay an accountant to do my taxes than save a little money by handing over my sensitive data.

What About Truly Free Filing?

So, to finally return to the subject that the policy dorks at Vox have been (valiantly) ranting about for years, it'd be easy for the government to roll out a system that would automatically prepare most Americans' taxes. Multiple articles on the subject of automated tax filing like to point out that Ronald Reagan supported the idea back in 1985 — here's a quote from the relevant speech:

We envision a system where more than half of us would not even have to fill out a return. We call it the return-free system, and it would be totally voluntary. If you decided to participate, you would automatically receive your refund or a letter explaining any additional tax you owe. Should you disagree with this figure, you would be free to fill out your taxes using the regular form. We believe most Americans would go from the long form or the short form to no form.

Now, as unexpectedly rosy as this might seem coming from the Gipper, you should keep in mind that this was essentially just a footnote to sweeping reform he proposed — it was Reagan's version of today's "postcard" tax return, an appeal to making taxes easier while really focusing on eliminating deductions and reworking the brackets to benefit the rich. Here's another excerpt from that same speech:

After taking the basic deductions, the first tax rate of 15 percent would apply to each dollar of taxable income up to $29,000 on a joint return. The second rate, 25 percent, would apply — and only apply — to taxable income above $29,000 up to a maximum of $70,000. The same principle applies throughout. Only taxable income above $70,000 would be taxed at the third and highest rate of 35 percent. Then no matter how much more you earned, you would pay 35 cents on any dollar to Uncle Sam. That's the top — 35 percent — down from 50 percent today.

Take a look at today's tax brackets to remind yourself that, although there are more than three brackets, Reagan came through for the rich. The top bracket was taxed at 70% before he entered office, 50% after his first push of reforms and since 1986 the top bracket has only reached a high of 39.6%. It's about as truthful to say Reagan was a visionary of simpler tax filing as it would be to say Alexandria Ocasio-Cortez's proposed 70% top marginal tax rate has no historical precedence.

So, what hope is there today for automated tax filing? Well, Elizabeth Warren introduced a bill in 2017 that would have the IRS end FFA and substitute it with their own software and a return-free option that would automatically generate a return using the forms your employer sends to the IRS. Personally, I'd like to see Warren make tax filing an issue in her presidential campaign, because while talking about a Green New Deal and an Ultra-Millionaire Tax are good, seeing how candidates decide between supporting a return-free option and opting for the lobbyist-influenced status quo would be quite informative. After researching this subject, I can't imagine enthusiastically voting for someone who thinks the way we do our taxes now is fine as-is.

Aside from flexing your political will by supporting policies that would de-privatize online tax filing while making it more accessible, the best thing you can do now to ensure online tax filing improves in the future is to starve the most predatory actors in the business of your money. Don't pay for TurboTax or H&R Block. Use Credit Karma but shop around for better deals than whatever they offer you in exchange for your data. If you can't use an FFA service and don't want to give your data to a big company, just seek out an accountant. You'll sleep better knowing you've paid for professional assistance without funneling money towards the worst of the tax preparation industry. It's not quite a no-brainer solution, but it is a somebody-else's-brainer.​