Is TurboTax the Enemy of Tax Reform?

By Derek Thompson

'Tis the season for taxes. And for 90 percent of Americans, 'tis the season for other people to do their taxes. With all those perplexing deductions and exemptions and calculations for the average family, it's just easier to send your stuff to H&R Block and hope the experts spot enough savings to make the outsourcing worth it.

It doesn't have to be like this. The IRS could have access to enough information -- income from the W-2 and 1099, mortgage interest, charitable donations, 401(k)s from banks -- to send Americans a one-page tax statement we could look over and sign. This wouldn't work for everybody, especially serious investors. But for most Americans with straightforward returns, it would make the April 15 deadline a lot less stressful. It would also make companies like TurboTax and H&R Block pretty nervous.

One way to help the IRS fill out our tax returns would be to make their job easier and dramatically simplify the tax code, eliminating those byzantine deductions or raising the standard deduction to encourage millions of Americans to avoid itemizing entirely. Advocates of tax reform like Sens. Ron Wyden and Judd Gregg and Rep. Paul Ryan propose just that. But something's happening that could block the move to simplify the tax code. It's called technology.

The number of Americans who file taxes through online software has increased 70 percent since 2001. The software is cheap, and it's good. Programs like TurboTax help filers sort through deductions to maximize savings and even offer premium versions to folks like sole proprietors and multi-member LLCs. At a tax event the New America Foundation last month, Bruce Bartlett, the former economic adviser to Presidents Ronald Reagan and George H. W. Bush, made a fascinating point. Tax reformers have reason to worry that programs like TurboTax might make filing taxes so painless (gulp!) that technology would undercut one of the major motivations behind tax reform.

I've placed three calls into the TurboTax press office in the last week and not heard back. When I do, I'll publish an interview about whether TurboTax and its company Intuit has a position on tax reform and whether experts think technology catching up to the tax code could actually hurt the case for tax reform.

Update: Bruce Bartlett responds.

This article available online at:

http://www.theatlantic.com/business/archive/2010/04/is-turbotax-the-enemy-of-tax-reform/38878/