August 22, 2005
Taxes, Attention Consumption and Competition
The short story is that Intuit, makers of TurboTax, doesn't want the IRS to release tax-assistance software to its citizens--which presumably would cut into Intuit's franchise of helping people cope with paying their taxes. As Declan quotes Intuit's CEO, "Government should not compete with its citizens."
Wow, is this screwed-up?! Let's see if I can sort through the problems here.
Let's start with the fact that our government imposes 2 types of taxes on us. The government taxes our earnings, naturally, but the government imposes a second, less obvious tax: the consumption of our attention to prepare our reports on our income. We spend a lot of time hand-wringing about the first tax, but in some ways I'm more upset about the second tax.
Time spent on preparing tax returns is among my bottom-five least favorite activities in life. I simply don't derive any positive utility from the process. To me, it's just time spent in my life that I would desperately like to allocate in other ways. I know some people have fun figuring out ways to beat the tax man, but I'm not one of those people. I just want a fair deal with zero time investment.
Unfortunately, given our convoluted tax system, to get anywhere close to a fair deal requires significant time. In past years, it has taken me 20+ hours to sort and prepare my materials for a tax preparer. (Lisa handles the bulk of the preparatory effort now, but it still requires 5-10 hours of my time each year). If you think about it, if I spend 20 hours on taxes for a 2,000 hour work-year, the government is taxing 1% of my time to report on my earnings. (Yes, I know that I work more than 2,000 hours/year, but the point remains the same).
Furthermore, there are some tax issues that I cannot resolve regardless of the amount of time I spend. For example, I tried to do a rough calculation of our tax obligations when we were filing returns in both CA and WI, and it was simply beyond my skill set. There was no way for me to reconcile the returns without the help of a software program or a tax expert. I just couldn't figure it out.
For people (like me) who can't or won't pay the attention consumption tax with our own time, we can outsource some of this responsibility to software or a service provider. Intuit's TurboTax is one such outsource solution. I have nothing against TurboTax, but for us, TurboTax isn't the answer. Our tax situation isn't ungodly complex, but it's typically complex enough that I wouldn't trust a software program.
Instead, we outsource our tax preparation to a CPA. Thus, I pay the annual attention consumption tax with a combination of my time (and Lisa's time) and a few hundred bucks to a service provider. So, if the government came up with a way to reduce the attention consumption tax it imposes on me, through software or otherwise, I would be thrilled. From my perspective, this would be a tax reduction, just like if the government gave me a $300 credit for having another baby.
Instead, Intuit thinks this is unfair competition between the government and its citizens. THIS IS WRONG. Intuit has found a business niche helping people reduce the government-created attention-consumption tax. They are taking advantage of the government screw-ups in its tax policy. The solution isn't to preserve Intuit's business niche; the solution is to fix the government screw-ups.
Providing help to its citizens isn't the government unfairly competing with private industry. And if the government fixing its mess means that some arbitrage-y business niches shut down, oh well--Intuit had a good ride. Shame on Intuit for draping its venal self-interest in the flag of advancing citizen's interests.
Meanwhile, we all know that the tax code is a disaster. It has been junked up by a combination of special-interest favoritism and economist-advocated tax credits as a way to encourage socially-desirable behavior. (It always strikes me as weird to see economists favor taxes as a social policy, but they do). The combination has resulted in a hairball that generates extraordinarily high transaction costs.
I would strongly favor a system that reduced transaction costs and the attention consumption tax....like a flat tax. Just take X% of my income, and make it progressive so that higher incomes pay a higher percentage. I know flat taxes aren't perfect, but the reduction in transaction costs has to be better than our current system. Each and every year when I'm spending those low-utility hours on taxes, I beg and plead--please, just impose a flat tax, take my money, and leave me alone already!
Posted by Eric at August 22, 2005 04:52 PM | General
Intuit is just wrong. We have used Turbo Tax for 8 years, and we're pretty happy with it. But, if the IRS provided us the software for less than $49.99 or whatever we pay each year, I would go for it. So, I guess UPS and FedEx should also stop the USPS from competing on package shipping? USPS is not free, but it is cheaper, but UPS and FedEx have gone a long way to making their experiences more pleasant, easier, and more efficient. Surely Intuit could think of a way to make a better, though more pricey mousetrap than anything the IRS can come up with!!
Posted by: Christine Hurt at August 23, 2005 10:05 AM
I do see the shipping business as different than the tax-assistance business. The tax-assistance niche exists solely because of the tax policy. The government could legitimately eliminate the niche in a heartbeat by eliminating income taxes altogether. Thus, the tax-assistance business exists solely to cure a problem created by government, and I think it's perfectly legitimate for the government to cure these problems itself. Eric.
Posted by: Eric Goldman at August 23, 2005 09:48 PM