Why simplification of the tax code is never going to happen

Meaningful simplification of the tax code is never going to happen. Congress can’t agree on where to go to lunch, let alone on something as politically charged as tax reform. The right is primarily funded by corporate America and the wealthiest 1% of individuals. These folks benefit greatly from the myriad loopholes and tax breaks in our system, resulting in dozens of hugely profitable companies that pay no federal income tax.  An IRS study found that one in every 189 taxpayers earning $200,000 or more in adjusted gross income paid no income tax in 2009. That's more than 10,000 wealthy households that paid no taxes anywhere in the world. How do people get away with paying little to no taxes? They invest in tax-exempt municipal bonds, which pay interest that you don't have to include as income on your tax return. They make a disproportionate amount of their income from stocks and other investments that are taxed as capital gains (15%) instead of ordinary income (up to 39.6% in tax year 2014). And they hire expensive accountants who know how to hack the system.

The left is no better. They can’t risk alienating their working class base by eliminating popular credits and deductions, like the mortgage interest deduction, property tax deduction, and Earned Income Tax Credit. If the proposed 2 percent floor on charitable giving is enacted, the Congressional Budget Office estimated it would reduce charitable donations in the United States by $3 billion annually. Non-profits aren’t keen on this of course, and they lobby the Democrats accordingly.

Throw in the millions of dollars that the tax prep industry spends lobbying against tax reform, and the headwinds are just too strong. Intuit alone has spent about $11.5 million on federal lobbying in the past five years — more than Apple or Amazon.

Yet the need for a pro forma (pre-filled) tax return remains huge. Tens of millions of taxpayers could use such a system each year, saving them a collective $2 billion and 225 million hours in prep costs and time. The most frustrating part – it’s not hard to do. The IRS certainly has all the data it needs to do millions of American's taxes for them. Even without the treasure trove of data Uncle Sam has, a commercial product could pre-fill a tax return for most Americans rather easily. The info needed is readily available from public data records (property tax records, marriage records) and social profiles (Facebook, Twitter). Throw in a picture of your W-2 or import it from your employer’s payroll provider and bam! Your taxes are essentially done.

Look, the IRS actually wants tax simplification to happen. They’re the ones that feel the pain and expense of processing everyone’s taxes. But it’s not their call, they’re beholden to the gridlocked American political system and an entrenched, multi-billion dollar industry. We’re not. We’re a startup, beholden to no one other than the free market. We can't change the tax code, so we’re doing the next best thing – building a product that abstracts the complexity of it away from tax payers. Please take a look at what we’ve built so far and let us know your thoughts.


Forget reform - How hyper-lean can benefit the simple taxpayer

Every year roughly 150 million Americans give up a few hours of valuable time, and more than a few dollars, to deal with one of life's unavoidables – taxes. At that same time, there is a deluge of media about proposed tax code reform, federal ReadyReturn, and all the countries who “do it better.” But it is dismissed. It is dismissed because the likelihood of any such changes seeing the light of day in the immediate future is slim to none. Fortunately technology has opened the door for a new breed of hyper-lean financial services companies to compete on the basic premise of offering a better, uniquely pro-consumer product experience for less. Companies like CreditKarma, Simple and Robinhood are providing services to consumers for free when those services used to command high price tags. They’re doing so by forgoing the expensive ads on the Big Game and the sunk costs of brick and mortar stores, and capitalizing on their competition’s encumbrance caused by organizational indecision and overwhelming technical debt.

The same can be done for taxes.

Almost 50% of what the IRS considers simple returns are prepared via a tax store or accountant. That means each of these simple taxpayers are paying upwards of $100 to prepare a return that is virtually identical to the rest of the 60% of taxpayers who also take the standard deduction and may tack on one of a handful of common credits. The task of preparing a simple return should not consume hours of time and hundreds of dollars, but due to lack of awareness and a lack of quality alternatives, many Americans are left forking over their hard-earned cash to companies that are fully aware of the stagnant industry landscape and the plight of their captive audience.

But it’s not enough to merely lower the cost to consumers. Hyper-lean services are a response to consumers’ heightened expectations of what software can do to make their lives easier. In the age of Google, Facebook, Amazon, and all the others who seem to know us better than we know ourselves, why should a consumer have to inform their tax preparer of choice whether they’re married, have kids, or own a home? Decades ago, the tax business was revolutionized when it transitioned from forms to interview. It’s now long overdue for another transition – from interview to review.

With the ever-growing availability of data, taxes should be little more than an upload of a W-2, followed by a quick review of the information gathered, and then it’s off to the IRS. It’s time to free consumers from refund loans, refund transfers, and hidden fees designed to extract every penny possible. It’s time to make a person’s data do more for them than generate redundant product offers and introductions to singles in their area. It’s time for the United States taxpayer to benefit from the hyper-lean, pro-consumer model, and at Common Form, that's exactly what we're doing.