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In California, the state does your taxes
State of California Franchise Tax Board.
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Tess Vigeland: Raise your hand if you're one of those waiting 'til the last minute to file your taxes. I can't see you, but I feel you. Why do today what you could put off 'til tomorrow, right? Well, the tomorrows are in short supply at this point. So, what if I told you that the government could do it all for you?
Julie Small reports on a program here in California that does just that.
Julie Small: California dreamed up the idea about a few years ago: Why not take information the state franchise tax board gets from employers -- y'know the stuff on your W-2 and 1099 forms from your bank -- and have the board fill out your state return for you? The program's called ReadyReturn, and it's up and running.
Colleen Odell: Actually, I received a notification in the mail that gave me my code number.
25-year-old Colleen Odell tried out ReadyReturn this year. The state franchise tax board notified some people, like her, directly to spread the word about the program. But most Californians have to check the tax board's Web site to see if they're eligible. Odell says if you are, you're in for a treat.
Odell: And it was pretty simple as in A, B, C, D. It kind of gave you the simple steps.
Odell reviewed her state-generated ReadyReturn on-line -- checked it against her own records -- and signed off. It only took 15 minutes. And Odell saved $65 she would have paid a tax preparer.
Odell: This is actually the first year that I didn't pay somebody to perform my taxes for me. I actually did them on my own. And I feel confident that I was able to do it.
ReadyReturn saves California money too. The state would have spent $2.50 to process Odell's paper return, but California spends less than 40 cents to process the ReadyReturn.
John Chiang: We're on to something here.
That's State Controller John Chiang. He heads California's tax board.
Chiang: When you have an easy program, when your friends talk about the program, when they're not afraid of looking at all the different numbers or the forms, you know, you have one easy form, then it encourages people to file.
Chiang can't use ReadyReturn, because his taxes are too complicated. The program's limited to single filers or heads of household who get income only from wages and only from one employer. You can't take itemized deductions, you can't have more than five dependents, and you are allowed one tax credit. In California, that tax situation applies to about two million people.
But last year, only 60,000 of those taxpayers used the program. Controller Chiang blames the stingy $10,000 budget he has to advertise ReadyReturn. This year, that paid for flyers and posters.
But tax expert James Maule thinks Californians snub ReadyReturn for a reason.
James Maule: They got the thing and then they never turned it back in, because it was a mess. They just realized "This is not really my return. This is the first five minutes of my return."
Maule teaches tax law at Villanova University in Pennsylvania. He says the government can't know all the complicated details of a person's life that change tax liabilities. So people will do one of two things -- either check the government's math, in which case, why not just file your own tax return? Or they'll take the government's word for it and maybe pass up credits or deductions they could have qualified for.
Maule: So it's not really saving very many people much work. Except, that it will take advantage of what I call "inertia on the other side" and that is people say, "Well, the government did this, so it must be OK.
California is the only state that offers pre-filled tax returns, but other states are thinking about the idea. And so is President Obama. In fact, Obama's leading economic advisor Austan Goolsbee came up with a federal version of the ReadyReturn. President Obama wants to adopt what they call "Simple Return." It's aimed at 40 percent of Americans who file straightforward federal returns -- that's about 53 million people. Goolsbee estimates that would save taxpayers 225 million hours of time, and $2 billion a year in tax-preparer fees and tax preparation software.
The Computer and Communications Industry Association hates the idea. The trade group includes tax preparation software companies like Turbo Tax maker Intuit.
President Ed Black says taxpayers should hate it too.
Ed Black: The incentives are clearly there for the government to maximize revenue, and for the private sector to maximize taxpayer awareness of the benefits and credits that are available to them.
And there's a logistical problem. Last year, the IRS said the Simple Return isn't feasible, because employers don't send the feds W-2 data early enough in the year. But that could be changed, if the political will existed.
Sacramento taxpayers Briget Bagney, Raj Bal Singh and Barbara Fontaine say bring it on.
Briget Bagney: I would actually welcome any simplification of the process, 'cause there's really no way of getting out of it, one way or another.
Raj Bal Singh: That is good, and I'm going to do it, if they allow me to do it.
Barbara Fontaine: Yes, I'm ready! I'm ready. I need all the help I can get.
President's Obama's Economic Recovery Advisory Board plans to consider return-free tax filing along with a bunch of other proposals to simplify the U.S. tax code later this year. That means for now, everyone's stuck with filling out the federal forms, even here in California.
I'm Julie Small for Marketplace Money.
I’m from the UK where, as long as you are not self-employed, the income tax process is pretty much transparent to the user: the government issues a code, dependent on income and basic deductions, & your employer deducts taxes accordingly. After moving to Canada I was appalled when I realized that, just like here in the States, I was expected to give up my own time to fill in the forms, not only for the Feds but then all over again for the Provincial government. Why am I doing this when all this information is already available to the government? The good news about such a system however is that one is made very aware of what you are paying and what deductions are available. But I have to say that my preference is for the system used in Sweden where the government sends out the detailed forms already completed for you to vet & correct if necessary. This is far more efficient yet still keeps the taxpayer very much in the loop.
Unfortunately, I must disagree with Alice. It's never a time saver checking to see if someone else has done something properly. There's a reason "it's faster if I do it myself," "it would have been faster had I done it myself," or some variant is heard so often, not only in tax return preparation but in other areas of law and life. Bamking on a state or federal computer system getting it right is risky, especially when one takes into account all the information that has been released concerning the antiquated state of most government tax computing systems, programming errors, data entry errors, data transfer errors, and a variety of other glitches. It shocks me how much confidence people have in government when it comes to having the government do a person's taxes. Think about the error rates in advice obtained from telephone calls to the IRS. Think about all the mistakes on the information return reporting letters, which are based on the same systems that would be generating these "government prepared" tax returns.
Jim Maule is just flat wrong in saying that ReadyReturn doesn't save people time, and the taxpayers in CA who love it are proof of that. Even if the return wasn't completely done, just having the form filled in with all of the W-2 information the government already has would be a tremendous time saver. Indeed, that is where the attention on the federal level has moved. If that information was filled in, returns could be done more quickly, and that would be a time and moneysave. Think about it: checking the information against what you have on your W-2 has to be faster than typing it in and then checking it.
If you want to talk to the academic who has been the midwife to the ReadyReturn movement in California, contact Professor Joe Bankman at Stanford. I'm a tax law professor at Temple in Philadelphia and have long supported Professor Bankman's efforts to promote ReadyReturn, including saving the pilot when the tax preparation industry tried to kill it.
