Crapo’s critique of direct tax filing is really to protect his political donors | Opinion
In a recent op-ed, Sen. Mike Crapo expressed his intense opposition to a proposal for the IRS to run its own tax filing portal. It’s a bad-faith argument that serves only to preserve a lucrative line of business for a sector of the financial services industry, an industry that has supported Crapo with abundant campaign donations.
“The IRS should stay out of the tax preparation business,” declared Crapo.
The unspoken second half of that sentence is: so that tax preparation chains will be protected from competition.
The IRS recently announced that it planned to launch a pilot program that will allow a small number of taxpayers to file their taxes directly online, as Politico reported.
Running a free online portal for taxpayers to submit their own returns, rather than using tax preparation companies, would be costly, Crapo argued.
“... (The) possible yearly cost for a new IRS call center is $208 million, and software development and maintenance is $40.8 million,” Crapo wrote. “While I doubt those estimates tell the full story, something ‘free’ and ‘simple’ does not have a $208 million annual budget for a call center to solve taxpayer problems and cost over a quarter billion dollars a year to run.”
A quarter of a billion sounds like a lot. But in context, it isn’t much at all.
According to a 2022 report from researchers at Harvard, Americans in 2018 paid an estimated $20 billion — 80 times as much — on fees to tax preparation services that Crapo claimed already provide software “for free.” The difference between “for free” and $20 billion is rather substantial.
Those fees amount to about 5% of the total amount of tax refunds that year — a huge overhead for the task of simply returning to taxpayers excess taxes they already paid.
Right now, every individual with an adjusted gross income of less than $73,000 — 98% of workers with one job fall into this category, according to the Harvard report — is supposed to be eligible for free filing through for-profit tax filing companies. But those firms are exceptionally good at trapping those people into paying fees nonetheless — only about 21% of those workers utilized the free file program.
That’s why it’s vital that the IRS have its own, easy-to-use free file portal: so that the three-quarters of single-job workers who are unnecessarily paying fees won’t be shuffled into a system designed to extract fees from them. It’s a system that focuses especially on extracting funds from those with the fewest means.
A 2016 study by the Progressive Policy Institute updated a longstanding body of research showing that tax preparation chains capture a huge amount of the Earned Income Tax Credit, a refundable tax credit meant to aid very poor families.
The average EITC-eligible family in low-income areas near Washington, D.C., was charged around $400 each to receive a payment in 2016. That was up from the roughly $200 in 2002 found by an earlier study by the Brookings Institute. In all, something like a fifth of EITC payments wind up going to tax preparation chains as various fees, the PPI study found.
What’s to lose by offering these families a free, public alternative run by the IRS? Well, all those fees. And that’s something Crapo cannot abide.
So it’s worth raising the question again: Just who is Crapo working for?
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