by Corinne Murdock | Oct 18, 2023 | News
By Corinne Murdock |
Gov. Katie Hobbs announced Tuesday that Arizona will participate in the Internal Revenue Service (IRS) free tax filing pilot program.
Under the IRS Direct File Pilot Program, certain Arizonans may file their state and federal returns directly to the IRS for free. While the program would come at no direct cost to those eligible, taxpayers ultimately subsidize this additional service.
In a press release, Hobbs said that the program would make filing taxes “convenient and easy.” Although Hobbs said that taxpayers could file both their state and federal tax returns through the pilot program, the IRS noted that its program would not prepare state returns but would instead guide taxpayers to a state-supported tool to file a stand-alone state tax return.
It’s unclear which Arizona taxpayers may participate: the IRS disclosed that it hasn’t finalized its determinations of who would qualify. Expected, but not finalized, eligibility includes: W-2 wage income, Social Security and railroad retirement income, unemployment compensation, interest of $1,500 or less, Earned Income Tax Credit, Child Tax Credit, Credit for Other Dependents, standard deduction, student loan interest, and educator expenses.
IRS Commissioner Danny Werfel promised to reporters in a call on Tuesday that this program wouldn’t replace popular private tax preparation companies like H&R Block or Intuit’s TurboTax.
“I can’t stress enough that Direct File, if pursued further after the pilot, would be just another choice taxpayers have to help them prepare their tax returns,” said Werfel.
Intuit spokesman Derrick Plummer claimed in a statement to PBS that the direct file program would cost billions of dollars.
“An IRS direct-to-e-file system is redundant and will not be free — not free to build, not free to operate, and not free for taxpayers,” said Plummer.
California, Massachusetts, and New York are the three other states that signed onto the pilot program for the 2024 filing season. The IRS noted that taxpayers in states without an income tax may be eligible to participate as well: Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming.
The direct file pilot doesn’t replace another existing free direct filing service by the IRS, Free File Program (FFP): a public-private partnership between the IRS and Free File, Inc., or Free File Alliance (FFA), a consortium of tax preparation and filing software industry companies. Those with an income of $73,000 or less qualify for a free federal tax return under that existing program.
The FFP was created in 2002 with the agreement that the IRS wouldn’t create its own free tax-filing software. However, the IRS removed that provision from the FFP memorandum in late 2019 following ProPublica investigative reporting that then-members of the FFA, namely Intuit and H&R Block (who together served 70 percent of FFA users), were charging FFP-eligible taxpayers for tax return services. The Treasury Inspector General for Tax Administration (TIGTA) in a follow-up audit found that over 14 million FFP-eligible taxpayers ended up paying for a commercial service for tax returns.
H&R Block departed the FFP in 2020, then Intuit in 2021. Intuit settled last year for $141 million over the claims.
The Government Accountability Office (GAO) found last year that the FFP has been vastly underutilized by eligible taxpayers, and that the IRS faced risks by relying on the private industry to provide free tax filing. Of the 71 percent of taxpayers eligible for FFP, only about three percent participated in 2020. The GAO recommended the IRS develop other free tax e-filing options.
In 2020, TIGTA reported that not many taxpayers used the FFP because it was rife with “complexity and insufficient oversight.”
The IRS promised to publicly share the results of the direct file pilot program once completed. More information on the program may be discovered here.
Corinne Murdock is a reporter for AZ Free News. Follow her latest on Twitter, or email tips to corinne@azfreenews.com.
by Dr. Thomas Patterson | Aug 18, 2023 | Opinion
By Dr. Thomas Patterson |
Critics of Donald Trump once counted tax evasion among his many faults. But it turned out that he wasn’t breaking any tax laws. He was simply utilizing the complex web of exemptions, deductions, and other rules available to reduce his tax bill to near zero.
It would be hard to imagine a worse tax system than our federal government’s. It is based on taxing economic productivity, which in a free-market system, benefits us all. Politicians use taxation not only to generate revenue but to pursue a grab bag of policies ranging from welfare programs to “climate change,” home ownership, and subsidization of state and local taxes.
The tax code is hopelessly complex and expensive to operate. Individuals and businesses spend around $37 billion and over 3 billion hours annually in tax compliance, up to 10 times as much as taxpayers in other wealthy countries.
Phil Gramm was right 25 years ago to suggest that the best option would be to scrap our entire tax system and replace it with a single national sales tax. He didn’t succeed, of course, but the concept is so sound it still remains active in academia, think tanks, and government white papers.
Representative Buddy Carter introduced the Fair Tax Act of 2023 in Congress this year and was promised a floor vote. This bill would eliminate all personal and corporate income taxes, payroll taxes for Medicare and Social Security, estate and gift taxes, as well as the Internal Revenue Service itself.
Instead, there would be an effective 30 percent consumption tax, but households would get a tax rebate check each month adjusted for family size and income. The rebate would have the effect of exempting all purchases up to the poverty line from taxation. The tax rate and rebates could be adjusted to make the tax revenue neutral and roughly as progressive as our current structure.
Still, Democrats and their media buddies immediately attacked the proposal as “tax cuts for the rich, period” and a “Republican dream to build a wealth aristocracy.” Even the Wall Street Journal criticized it on political grounds, worrying that even though it “made sense,” it might hand Democrats a juicy campaign issue.
But its critics, perhaps intentionally, misunderstand the bill. Americans would not on the net pay more taxes. Nor would low-income earners be punished. The tax burden wouldn’t grow but only be redistributed.
Outsized deductions and other tax shelters would vanish, meaning the ultra-wealthy and the big spenders would pay taxes more appropriate to their incomes. Savers would obviously benefit. Investments could grow tax-free.
Some critics argue that tax evasion would be a problem. But that’s true of any tax scheme, including the one we have now. The IRS estimates that Americans underpay their taxes by $500 billion annually, in addition to the billions of fraudulent claims in programs like the Earned Income Tax Credit.
The Fair Tax wouldn’t have to be perfect to be more efficient and less cumbersome than our current system of self-reporting buttressed with audits. Avoiding the stressful hassles with the IRS would be a welcome relief to many Americans.
A more substantial concern is that future legislatures may try to augment the consumption tax by adding back income and other taxes so that we end up with the worst of both worlds. A constitutional amendment prohibiting an income tax would be preferable. Otherwise, careful consideration must be given to rigid self-activating safeguards to protect taxpayers.
The Fair Tax has never passed because of political opposition from groups that have too much to lose by giving up the status quo. Yet if government wants to subsidize things like housing, electric vehicles, or healthcare, it would be more transparent and accountable to appropriate the money rather than disguising it as a tax deduction or credit. Likewise, if Americans want to financially support charitable causes, and they do, they should do it with their own money, not a partial government subsidy that comes with strings attached.
Tax reforms are always opposed by those who benefit from the current structure. But the Fair Tax would be a far more equitable and transparent way to fund government. It deserves a look.
Dr. Thomas Patterson, former Chairman of the Goldwater Institute, is a retired emergency physician. He served as an Arizona State senator for 10 years in the 1990s, and as Majority Leader from 93-96. He is the author of Arizona’s original charter schools bill.
