Sen. Elizabeth Warren (D-Mass.), whose office estimates that the average American spends 11 hours and about $200 on tax preparation, would like you to know it doesn’t need to be this way. She’s now reintroducing her Tax Filing Simplification Act, which she first introduced in 2016. The legislation, should it ever come to pass, would essentially free many Americans from the time-consuming and costly ritual, while making it less costly for others. And that’s not all. On Thursday, Warren debuted another proposal, the Real Corporate Profits Tax, which would make it harder for the largest corporations to avoid paying their fair share.
Under current law, corporations can report large sums of annual profit to Wall Street and investors, while still using loopholes to pay no taxes to the feds. According to a study released Thursday by the Institute on Taxation and Economic Policy, at least 60 Fortune 500 companies paid nothing to the federal government in taxes in 2018, continuing a decline in corporate tax revenue since President Trump and congressional Republicans lowered the corporate tax rate. The companies include Amazon (founded by The Post’s owner, Jeff Bezos), which is paying nothing despite earning more than $230 billion worldwide.
Warren’s effort would make that dance impossible. Her bill would set a 7 percent tax rate on all reported profits in excess of $100 million. In other words, if a mega corporation can report those sorts of earnings to Wall Street, it needs to pay a minimum tax, no matter how many loopholes it takes advantage of.
What the two ideas share — besides Warren as their author — is that the problems they address are both products of business lobbies’ influence in Washington. Much in the way corporations frantically lobbied for a tax cut, you can thank the tax prep industry’s influence for the unnecessary time and money spent in the run-up to Tax Day. We saw a demonstration of how this works on Tuesday, when the House — with a Democratic majority — voted to advance a bill that (among other things) keeps the tax prep industry in the online tax return business while keeping the IRS out. Consumer advocates — including the well-regarded National Consumer Law Center — say the bill’s language prevents the IRS from offering up rival services that would compete with the offerings of the private, for-profit sector. (The bill’s sponsors deny this.) According to ProPublica, Intuit and H&R Block spent upward of $6.6 million on lobbying last year.
If Warren gets her way, the IRS would be required to offer an online service at no cost, one that would permit filers to do their taxes without the involvement of outside tax prep businesses. At the same time, those with basic returns could request the government send them a tax return already filled out with the information that the government receives from employers, financial services firms and others, the way it is done in other developed countries such as Britain, Germany and Sweden. If you agree with the government’s figures, you sign off and either pay up or wait for your refund. If you disagree and/or don’t trust the government to do your taxes, you still have the freedom to do them yourself.
And it should be noted that the $11 billion (and growing) tax prep industry isn’t simply making its money from simple filing. As a Government Accountability Office study requested by Warren shows, there are all sorts of ways for players in the business to profit that go beyond tax prep fees. Take refund advances, when tax prep companies offer up the tax refund to the consumer immediately, instead of forcing him or her to wait several weeks for the government to pay up. While those advances are almost always free of charge, the transferring of an advance — be it to a temporary account set up at a bank or onto a prepaid debit card — is not, and typically runs consumers between $40 and $50. There are also ways to steer tax preparers toward recommending a higher-cost transfer service by kicking back a portion of the fee — to the professional, not the customer. Then there are services where customers are not charged for an advance — up to a point, with the additional amount subject to interest rate charges that can go as high as 35.9 percent. It should go without saying that low-income and minority households are more likely to turn to these costly financial services.
That an entire industry can make millions by complicating a civic duty is infuriating — doubly so if you think about it while putting the finishing touches on your returns. Good for Warren for continuing to call out these interests — and shame on all the members of Congress who allow this situation to fester.