Liberals abandoned a last-minute rebellion Tuesday over a bill to change the Internal Revenue Service, with Democratic leaders easily pushing legislation through the House that would bar the IRS from creating free tax preparation software.
The House approved the bipartisan legislation on a voice vote as liberals, who feared the measure would enrich private tax preparers at the expense of millions of taxpayers, gave up their fight, in part because of the value of other elements of the legislation.
The bill includes other changes to the nation’s tax collection agency, such as protections from private debt collectors and millions of dollars in program assistance for low-income taxpayers.
Experts differ on how the measure would, in practice, affect the IRS’s ability to create free tax preparation programs online.
On Tuesday, ProPublica reported that the legislation included a provision to codify an existing arrangement preventing the IRS from creating online tax filing software to compete with private services such as TurboTax.
But two Senators who have backed the package disputed that characterization, arguing the critique was based on a misunderstanding of the legislation.
Sens. Ron Wyden (D-Ore.) and Charles E. Grassley (R-Iowa), the ranking members of the Senate finance committee, both said that the legislation would not prevent the IRS from creating its own tax filing software. Ashley Schapitl, a spokeswoman for Wyden, said that the Senator’s office confirmed with the IRS chief counsel that the tax collecting service can still create its own system under the legislation.
“Nothing in the legislation would prevent the IRS from continuing to provide online assistance to taxpayers or develop new online options to help taxpayers,” Grassley said in a statement. “Arguments to the contrary aren’t based in fact and rely on either misunderstandings or misleading special interests.”
Legal experts such as National Consumer Law Center and other advocacy groups, however, say the legislation would indeed bar the IRS from developing competing software.
Reps. Katie Hill (D-Calif.) and Alexandria Ocasio-Cortez (D-N.Y.), who had criticized the provision over the IRS’s software, said in speeches before the measure passed that the package overall was worth supporting.
“They were persuaded to see that stopping passage based on one objection would kill highly palatable aspects of the bill,” said Brenda Jones, a spokesman for Rep. John Lewis (D-Ga.), a sponsor of the bill. “Those members recognized that these provisions were meaningful and that we might lose the opportunity to move these salient features forward indefinitely, so they agreed to allow the bill to pass on a voice vote.”
Under a memorandum of understanding between a group of private tax preparers and the IRS, the government may not offer free online filing services to taxpayers.
The IRS already offers a program that allows low-income taxpayers to file free, but it is done through industry software and industry systems and is not well-publicized. Only 2 percent of eligible low-income filers use the free system, while some experts have long argued the IRS could help more Americans by offering its own free online software system.
Supporters of the legislation will form a new “working group” to study the problems in the IRS’s partnership with private tax preparers, according to Jones. The new provision would probably not have an immediate impact since the IRS already does not offer its own tax software services.
But liberal lawmakers had threatened to tank the legislation over the provision, with Hill earlier in the day calling it a “sneaky provision the tax preparation lobby has been pushing for, and it hurts consumers.” Rep. Ro Khanna (D-Calif.) had also strongly criticized the measure and vowed to oppose it.
“It goes against everything we ran on. It has to be addressed. It’s a huge benefit to the corporations,” Hill said.
But defenders of the measure have argued House Democrats scored significant victories in the legislation such as new rules for private debt collection agencies that sometimes obtain debt payments from low-income taxpayers. The legislation also provides up to $30 million in matching grants for a program that provides help to low-income taxpayers.
“We think whatever the opposition to this might be, perhaps they are not reading the bill thoroughly because these provisions have existed for a long time,” Jones said, adding the proposal had been discussed at committee hearings and approved without eliciting dissent. “We just simply never got any pushback on them on the three years we have been working on this,” Jones said.
But some experts have argued that the current system hurts U.S. taxpayers, solely for the benefit of companies like H&R Block and Intuit, which spend millions on federal lobbying annually. In the United Kingdom, Germany and many other European countries, governments provide the software for taxpayers to fill out their returns online. The result is that filing taxes is free and significantly faster than it is in the U.S., said Jeremy Bearer-Friend, a tax law expert at New York University.
“The tax filing system has been captured by a lucrative industry and they guard it jealously,” Bearer-Friend said. “Our government should provide a free public option for paying taxes. We shouldn’t have to spend our own money on our own tax filing obligations.”