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| Citing a need to crack down on fraud, Two Republican in Congress have proposed a new licensing system for tax preparers. If passed, it likely would put more small tax preparers out of business and help big companies that profit off the complexities of the U.S. tax code. And it would make tax preparation more expensive!! |
Thanks to a federal tax code that is endlessly confusing and frustrating, an estimated 80 percent of Americans needed assistance filling out their returns this year.
But citing a need to crack down on fraud, two Republican members of Congress have proposed a new licensing system for tax preparers. If passed, it likely would put more small tax preparers out of business and help big companies that profit off the complexities of the U.S. tax code.
Under the legislation authored by Reps. Diane Black, R-Tennessee, and Pat Meehan, R-Pennsylvania, tax preparers would have to register with the IRS, submit to a background check, pass an exam and complete continuing education classes each year.
The two lawmakers say the licensing rules are intended to cut down on $15 billion in improper earned income tax credits handed out in 2013.
Critics say the proposal is a case of government making worse a problem government created to begin with.
"With a tax code so unwieldy and complicated that nearly every American needs help complying, how would regulating preparers make things easier? It won't," says Chris Koopman, a research fellow at the Mercatus Center, a free-market think tank. "The problems with tax compliance have little to do with who is preparing returns. Making it more difficult for individuals to get the assistance they need will help no one."
Well, that's not entirely true. It will help one specific group: the companies that make their money during tax season, like H&R Block, Jackson Hewitt (which owns the Turbo Tax software brand) and CPAs. As the Wall Street Journal reported, the professional tax preparing industry is cheering for the new licensing rules because they would reduce competition and force taxpayers to use their services.
Isn't that just grand? Businesses that exist solely because of the complexity of the federal tax code (in other words, businesses that wouldn't exist if it wasn't for the federal government's interest in every aspect of your financial life) are lobbying for the federal government to create even more rules so they can make even more money off taxpayers.
And in some cases, they're not just lobbying for the new rules – they're actually writing them.
A former CEO of H&R Block, Mark Earnst, oversaw the creation of a licensing system in 2010 while he was deputy commissioner of the IRS. The new rules proposed by Black and Meehan would raise the bar even higher.
And we already know what happens when these types of restrictions are put in place. The people who get hurt are the small-time tax preparers. People like Elmer Kilian, an 81 year old resident of Eagle, Wisconsin, who does his neighbors' tax returns every year for a small fee.
After the IRS pushed through its licensing rules in 2010, the number of tax preparers in the country declined by an estimated 200,000. According to data from the Institute for Justice, it was mostly small tax preparers who were driven out the market, while large companies such as H&R Block got a bigger share of business in the years that followed.
The other loser, as is so often the case with licensing schemes: consumers.
"Licensing reduces competition in the tax preparation market, which is bad for consumers," Dan Alban, an attorney with the Institute for Justice, recently told the Senate Finance Committee. "Between reduced competition and increased regulatory compliance costs, licensing is expected to artificially drive up the prices consumers pay for tax preparation."
The Nanny State isn't always about telling you what is illegal and what is mandatory. Sometimes it's about changing the rules, ever so slightly, to help the powerful (or at least those who make their money by helping the powerful avoid paying taxes) at the expense of everyone else.
Tax preparers such as H&R Block and TurboTax are facilitating the Nanny State by their very existence. In return, the Nanny State helps keep them in business.
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Eric Boehm is a reporter for Watchdog.org. Follow him on Twitter at @EricBoehm87.
Tags: Nanny State of the Week, Nanny State, Happy Tax Day, Get Ready To Pay More, To File, Watchdog, Eric Boehm To share or post to your site, click on "Post Link". Please mention / link to the ARRA News Service. and "Like" Facebook Page - Thanks!
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