Why No One Should Ever File Income Taxes Again. It’s Easy For The Technology – Not So Much For The Tax Preparation Industry.
Machine learning makes tax filing obsolete. It’s only a matter of time. How long? Five years – maybe less — or maybe more. But it’s not a technology problem – algorithms can easily prepare and file your taxes. No, it’s a policy problem, and we all know how that works.
An Easy Machine Learning Problem
Machine learning (ML) is killing all sorts of processes and entire business models. Areas like tax planning, preparation, reporting and documentation that are well-bounded and deductive – what those in AI call “narrow AI” – are ready for supervised machine learning. What’s taking so long? Everything’s already digital. Your personal taxes require preparation, submission and calculation, all pretty easy for smart machines (that don’t need to be all that smart to do your taxes).
There’s a small army of consultants to help anyone who needs it. The tax preparation industry has convinced everyone that they better file their taxes perfectly or they will get audited or, worse, receive a smaller refund to which they’re entitled! But the tax preparation and filing processes have already been systematized in software. Another way of saying this is that we “know” how to plan, prepare, report and document taxes with or without the help of TurboTax, H&R Block or accountants. Whenever processes can be systematized, they can be mostly or completely automated. So we know how to automate much, if not all, of the tax preparation and filing process. Americans spend billions of hours and billions of dollars every year on tax preparation and filing. This is an unnecessary investment.
The Old Fashioned Way
Your accountant, Intuit’s TurboTax or H&R Block tell you that you need at least the following to do your taxes: personal information, sources of income, records of all expenses and all deductions. But all of these documents have already been digitized. They’re already machine readable. IRS already has them (or access to them). If you use a software app, you input the numbers and calculations are automatically done for you. If you hand the documents over to a human app (AKA as an accountant), the same thing happens. But why are you inputting anything? Why are you hiring someone to do what you could do or – more pertinent to this discussion – what could automatically be done for you without any human intervention? The US is way behind here: “At least 30 countries permit return-free filing, including Denmark, Sweden, Spain and the United Kingdom … dozens of prosperous countries save billions of dollars and hours annually by not requiring residents to fill out tax returns.”
So What’s the Problem?
If it’s not the technology – which it’s not – it must be something else. Monica Prasad suggests what it might be:
“But in the United States, filing taxes is painful by design. The tax-collection system as we know it is the outcome of three forces: corporate lobbying, a stubborn resistance to borrowing good ideas from other Western nations, and the Republican Party’s decades-long campaign against taxation itself.”
“In the Netherlands, the procedure is simple. First, you look over the form the government sends you with your taxes already calculated, and you check it. Second, you sign it and send it back. Third – well, there is no third. That’s the entire process. Dutch citizens can file their taxes in minutes.”
“This is the case in country after country. In Japan, Sweden, Estonia, and Great Britain, people don’t have to file their taxes. They are spared the high-stress homework assignment that Americans face every year. Citizens of these countries do get the opportunity to check the government’s arithmetic if they like, but in most cases, taxpayers seem to think the calculations are reasonable. In Denmark and Spain, the proportion who ask for their returns to be adjusted is less than a quarter, and in Sweden, 72 percent of taxpayers say filing taxes is easy.”
Others, like Beverly Moran, feel the same way:
“As an expert on the U.S. tax system, I see America’s costly and time-consuming tax reporting system as a consequence of its relationship with the commercial tax preparation industry, which lobbies Congress to maintain the status quo.”
This is downright depressing – to the tune of billions of hours and dollars unnecessarily spent on tax preparation every year.
The outrage and objections seldom describe the technology that automates the tax preparation and filing processes. Several proposals (by Presidents Reagan and Obama) offered to prepare taxes for broad swaths of the population but not to automate the whole process. (In fairness to Reagan, the technology wasn’t nearly as developed in the 1980s as it is now.) But it is today.
Lobbying is alive and well on behalf of the tax preparation business. So if Americans want their taxes automated they have to demand it through communication with their elected representatives. There also needs to be media campaigns that educate Americans about how unnecessary “taxes” are and how easy it is for the government to automate the whole process, like what happened in 2019 when Americans screamed about Congressional action “to ban the government from offering free online tax filing.” These free online filing programs, like the ones proposed by Reagan and Obama, were targeted at the simplest tax returns (which is the majority of tax returns filed) and filers who would benefit the most from free-filing. The program is the IRS Free File program that provides certain taxpayers with a free-of-charge TurboTax/H&R Block-like application to file their taxes without buying software or paying an accountant. But in order to use it, you need the same information you must collect and input to your tax preparation software or to an accountant. This is not the “Now What?” we should bd seeking. Regardless of the complexity of a return, the system should work as described above: “first, you look over the form the government sends you with your taxes already calculated, and you check it. Second, you sign it and send it back. Third – well, there is no third. That’s the entire process.” Full automation is the objective where there’s no need for a public-private partnership just a smart application that does it all for you.
“What’s Next?” is best described by T.r. Reid:
“If you walk down the street in Tel Aviv, Tokyo, London or Lima, Peru, you won’t see an office of H & R Block or a similar company; in most countries, there’s no need for that industry.”
“In Japan, you get a postcard in early spring from Kokuzeicho (Japan’s I.R.S.) that says how much you earned last year, how much tax you owed and how much was withheld. If you disagree, you go into the tax office to work it out. For nearly everybody, though, the numbers are correct, so you never have to file a return.”
“What’s going on in these countries – and in many other developed democracies – is that government computers handle the tedious chore of filling out your tax return … the taxpayer just has to check the numbers. If the agency got something wrong, there’s a mechanism for appeal.”
“Our own Internal Revenue Service could do the same for tens of millions of taxpayers. For most families, the I.R.S. already knows all the numbers.”
The good news is the technology is ready, willing and able; the bad news is the tax preparation industry and the government it lobbies, isn’t. Unless everyone screams loud enough.